Many or all of the products and brands we promote and feature including our ‘Partner Spotlights’ are from our partners who compensate us. However, this does not influence our editorial opinion found in articles, reviews and our ‘Best’ tables. Our opinion is our own. Read more on our methodology here.
Table of Contents
Start-up funding for small businesses is all about capital and getting the money needed to get your business off the ground, or finding funding sources for expansion. And working out how best to secure the funding for a start up or expansion is a task most budding small business owners will face. The biggest questions surround what funding is available for small businesses and start ups, as well as finding out how each type of funding works.
There are many different types of start-up and small business funding available in the UK, which can be both a blessing and a curse if you’re not sure where to begin. So to help you understand what could be available, here are 16 funding options for start ups and small businesses in the UK.
Start up finance for small businesses
Start-up business finance covers a range of loan and financing options from banks, building societies and alternative finance providers designed to support businesses of all sizes in their early stages. These include:
Start up business loans
These loans are aimed specifically at new businesses with little in the way of credit history, assets or trading history. Instead, to get a start-up business loan, lenders will usually want to see a business plan and projections of how you think your business will perform before making a lending decision. Some lenders offer these loans from their own balance sheet, but many also lend using the Start Up Loan Scheme introduced by the government to try to ensure businesses have access to the funding they need.
» COMPARE: Business start up loans
Government funding for start ups
The Start Up Loan Scheme is the main source of government support for new businesses in the UK. Under the scheme, eligible entrepreneurs who have a business that has been trading for under three years, or plan to open one, can apply for between £500 and £25,000 of funding as support.
These loans, which are funded through the British Business Bank and its subsidiary Start-Up Loans Company, are to the individual, not the business. They are also unsecured, so no collateral is required. Repayment of the loans is required over no longer than five years, and the interest rate is fixed at 6% per year.
Traditional business loans
This type of business loan can be harder to secure as a new business. You may not have yet built up the good business credit rating that is typically required and will likely lack the hard proof – by way of profit, revenue and turnover – that your business is safe to lend to.
Getting a standard business loan might still be an option if you’re willing to offer a personal guarantee as a director of your company to cover any loan repayments your business might not be able to make from your own personal finances. Remember that using a personal guarantee could put your personal assets at risk if you are unable to repay the loan.
Alternatively, you may have some form of collateral you can put forward as security towards getting a secured business loan. This might include property or other assets owned by the business.
» COMPARE: Secured business loans
Personal loans
Another option could be to take out a personal loan in your own name rather than that of your business. The lending decision will be based on your personal credit score and financial situation, but it’s important to check with the lender whether they are happy for a personal loan to be used for business purposes.
» COMPARE: Personal loan deals
Business credit card
When managed properly, a business credit card can offer a flexible way of borrowing to fund the growth of your start up. They are very similar to personal credit cards and if your business doesn’t have much in the way of a credit history, some lenders will base their decision on your personal credit score or ask for a personal guarantee that will oblige you to make repayments from your own finances if the company doesn’t.
» MORE: Business credit cards explained
Business line of credit
Establish a business credit line, and a business will have funds available that it can draw on as and when required up to a pre-agreed limit. This form of short-term borrowing offers flexibility, but there will be a set date when the line is closed and everything will need to have been paid back.
Further options for existing small businesses
If your small business is up and running and you’re looking for additional funding to support the early success you’ve had, there are a number of other options you might be able to explore:
- Invoice finance, where companies borrow against customer invoices that are still to be paid.
- Asset financing, which sees a lender fund the purchase of assets for your business and your company pays to lease the asset or buy it outright over a period of time.
- Asset refinancing, where finance can be raised by selling a company asset to a lender and leasing it back.
- Merchant cash advances, which involves raising funds based on a business’s projected card sales.
- Business bridging loans, where a company can secure short-term funding, usually secured against property it owns.
Grants for start ups and small businesses
As it is a source of funding that doesn’t need to be repaid, small business or start-up business grants should always be explored. Grant funding from various organisations and the government are available in the UK to support businesses. Sources of funding include Innovate UK and The UK Shared Prosperity Fund. In addition, The Seed Enterprise Investment Scheme can offer tax relief for investors in your business.
However, with competition for this free support from government grants and other organisations is understandably high, it’s important to check carefully whether you’re eligible for a particular grant before you apply and be patient as you await a response.
» MORE: Small business grants
Crowdfunding for start ups and small businesses
The rise in popularity of crowdfunding in recent years means it is now a fully fledged option for securing expansion or start-up funding in its own right, rather than just an alternative to explore when the more traditional sources of lending are closed.
Crowdfunding can take various forms, but the main premise is to persuade a number of smaller investors to each put forward an investment that collectively will raise the funds your business needs. Each investor will generally take a small stake in your business in return.
» MORE: Crowdfunding for businesses
Friends and family
Sometimes the small business start-up funding help you need might be closer to home than you think. For example, sharing your business idea with family and friends could be a good way to gauge whether you’re on to something with potential. But equally, it may pique their interest enough that they’re willing to offer support financially to help get it off the ground.
» MORE: How to safely borrow from family and friends
Angel investors
Angel investors are typically high-net-worth individuals who want to invest in smaller or start up businesses in the hope of securing a return. Angels will normally take a minority stake in the business in return for their ‘seed funding’. But often just as importantly, they can provide a useful source of support to business owners, sharing their knowledge, experience and perhaps even business contacts to help drive the business forward.
» MORE: How angel investors support businesses
Venture capital
Venture capital shares some similarities with angel investing but is generally on a much bigger scale. Instead of an individual investor, venture capital generally involves an entire firm, run by professional investors, taking a stake in your business. As a result, investment amounts are typically much larger and a venture capital firm will usually want a say in how your business is run, often by insisting some of its own people are brought in.
What to do once you have your start up funding
Securing the start-up funding that you need is likely to come as a huge relief and, when used the right way, can get your small business off on the right foot, or push it forward if it’s already going. The key is spending the finance you’ve raised sensibly and in a manner that will hopefully benefit your business.
Most likely, you’ll have made plans for how you’ll spend your start-up funding already. Buying essential equipment, finding premises, recruiting some extra help, and advertising might all be on your list. Whatever your intentions, think carefully before you spend, and consider whether you need to hold some of the funds back in reserve.
And of course, in the world of business, it’s also never too early to start thinking about the options for raising your next round of funding.
» COMPARE: Business loans
More financial help for small businesses and start ups
If your small business or start up needs more financial support, it’s important to remember that raising money is not your only option. For example, you may be able to apply for relief on business rates or help from JobCentre Plus work coaches if you are unemployed.
In addition, there may be ways for your business to save money by controlling costs and reducing outgoings like business energy.
Image source: Getty Images
Dive even deeper
Public Liability Insurance: What is it and What Does it Cover?
Small Business Grants and Start Up Business Grants in England – Apply now for 2025
by George Harrison