How to get startup funding in the UK

A lot of our customers who have successfully launched a new business eventually need startup funding to take their business to the next level.

The fact is, if you’re struggling to find funding opportunities, you’re not alone. The options may seem endless, not to mention complicated, so which one do you choose? Do you go for angel investment, crowdfunding, venture capital or startup loans? Or is a bank loan or government grant best for you?

To help with your decision making, we’ve drawn up a quick guide that summarises the pros and cons of the nine most popular startup funding options in the UK.

1. The Start Up Loan Scheme

The Start Up Loan scheme is a UK government-backed scheme that can help to bring your business idea to life. It allows you to borrow between £500 and £25,000 to start and grow your business. This is in the form of an unsecured personal loan, so unlike most business loans, there’s no need to provide assets as security or for guarantors to support your application.

• As well as funding, you’ll receive 12 months of free mentoring to help you succeed.

• As it’s a personal loan, you’ll be liable to repay the loan in full even if the business fails.

2. Small business grants

These government grants are often project-based and apply to conservation, renewable energy, social, community or NFP sectors. They could range anywhere from £100 to £1 million.

• If you meet the grant conditions, you shouldn’t have to pay the money back. You’ll also probably have access to a business mentor or other business knowledge.

• These grants are often hard to come by, and involve a long application process.

3. Friends and family

One of the cheapest and most reliable ways to raise startup funding in the UK is to borrow money from family and friends. As your biggest cheerleaders, your loved ones may be willing to invest in the business or provide a loan.

• The interest rates are likely to be favourable and assets will not have to be provided as collateral.

• There are significant risks involved and if the business fails and you are unable to repay the loan, your personal relationships could suffer. 

4. Equity crowdfunding

Most commonly in digital or tech industries, equity funding sees lots of people give you a little money in exchange for equity. Funding can be anywhere between £5,000 and £2.5 million.

• You can raise money quickly this way. Investors often become evangelists for your business as well.

• Giving up equity means losing some control. Investors may also have limited business experience.

5. Debt-based crowdfunding

In debt-based crowdfunding, many people lend your business money which you pay back with interest. Any industry is eligible. Funding can be anywhere between £5,000 and £2.5 million.

• You can gain fast access to funding this way, so it’s a good route if you’re struggling to find a loan.

• Interest rates are usually higher than the banks’. You won’t get any access to business knowledge or support.

6. Peer-to-peer lending

Peer-to-peer lending platforms connect startup businesses in need of cash with private investors looking for an investment opportunity. Businesses receive unsecured business loans of up to £500,000 and the lenders receive interest and get their money back when the loan is repaid.

• Peer-to-peer loans are often more accessible than business loans from the bank and often come with lower interest rates.

• You may need to pay an application fee and pass credit checks to secure a loan.

7. Angel investment

Good for early-stage businesses, angel investment is when an investor provides you with business funding in exchange for equity – a bit like Dragon’s Den. Funding is usually between £15,000 - £150,000, but could be a lot more.

• You’ll benefit from the angel’s experience as well as their finance.

• Giving up equity means losing some of the control of your business. Angels often have high expectations as well.

8. Venture capital

Private equity firms invest in your business, often seeking out businesses that will disrupt an industry. You could have access to funds anywhere from £150,000 to £10 million this way - by far the highest amount of all the options available.

• You’ll benefit from these firms’ knowledge and business expertise. They’ll also be able to facilitate a sale or IPO.

• They usually impose tight conditions, such as a 5- to 7-year timeframe. You could also lose control of your business.

9. Small business loans

This traditional method is by far the most popular. Nearly £12bn is raised each month in startup funding in the UK this way. The bank loans you money, which you pay back with interest. They’re less likely to take risks with your business though, so you’ll usually need to be in an established industry.

• Interest rates are lower than with most other options, and you won’t have to give up any equity.

• However, there are stringent funding requirements. They may also ask for significant collateral.

Decide which solution is best for you

The most common form of funding is still through traditional bank loans, but there may be reasons why this isn’t a good option for you. Debt-based crowdfunding is another commonly used source, raising more than £3.7bn per year. However, the best funding method for your start-up ultimately depends on your particular circumstances and the nature of your business.

Ready to grow your business further?

We’ve recently produced an interactive questionnaire that maps out how to grow your business and take it to the next level. Answer the questions honestly to get a personalised to do list that shows you where you’re at.