Strategic Transformation & Planning
Financial Management & Performance
Top 21 Ways to Finance a Business in the UK (Without Using Personal or Family Money)
A practical guide to business funding options for UK entrepreneurs — from government-backed loans to tax credits and crowdfunding.
1. Business Bank Loans (Term Loans)
How it works: Borrow a lump sum from a bank and repay it over a set period with interest.
Example: A window cleaning business borrows £50,000 to purchase equipment for expansion. They agree to repay the loan over five years at a 7% annual interest rate.
Pros: Predictable repayments; suitable for substantial investments.
Cons: Requires good credit history; may need collateral.
🔗 British Business Bank – Business Loans
2. Business Overdrafts
How it works: An overdraft allows you to withdraw more money than is in your business account, up to an agreed limit.(Start Up Loans)
Example: A retailer uses a £10,000 overdraft to cover short-term cash flow gaps during seasonal sales dips.(British Business Bank)
Pros: Flexible; interest only on the amount used.
Cons: Higher interest rates; repayable on demand.
🔗 British Business Bank – Business Overdrafts
3. Start Up Loans (Government-Backed)
How it works: Unsecured personal loans of £500 to £25,000 for starting or growing a business, with free mentoring.
Example: An entrepreneur secures a £15,000 Start Up Loan to launch a catering service, covering equipment and marketing costs.
Pros: Fixed interest rate; includes business support.
Cons: Personal credit check required; limited to £25,000 per individual.
🔗 GOV.UK – Apply for a Start Up Loan
4. Asset Finance
How it works: Finance the purchase of assets like machinery or vehicles, spreading the cost over time.
Example: A bakery uses asset finance to acquire a new oven, paying in monthly instalments instead of a lump sum.(Find IFAs & Financial Experts)
Pros: Preserves working capital; assets can generate income as you pay.
Cons: Total cost may be higher due to interest; asset may serve as collateral.
🔗 British Business Bank – Asset Finance
5. Equipment Leasing
How it works: Lease equipment for a period, with options to upgrade or purchase at the end.
Example: A construction firm leases heavy machinery for a project, avoiding the upfront purchase cost.
Pros: Access to latest equipment; maintenance often included.
Cons: Long-term cost may exceed purchase price; no ownership unless purchased.
🔗 Time Finance – Equipment Leasing
6. Invoice Financing
How it works: Sell unpaid invoices to a lender to receive immediate cash, improving cash flow.
Example: A wholesaler with a £10,000 invoice due in 60 days receives £9,000 upfront from an invoice finance provider.(Swoop Funding)
Pros: Quick access to funds; reduces waiting time for payments.
Cons: Fees apply; may affect customer relationships.
🔗 Clifton Private Finance – Invoice Finance
7. Merchant Cash Advance
How it works: Receive a lump sum in exchange for a percentage of future card sales.
Example: A café obtains £20,000 and agrees to repay 10% of daily card sales until the amount plus fees is repaid.(Fundsquire UK)
Pros: Repayments align with sales; quick approval.
Cons: Higher overall cost; not suitable for businesses without card sales.
🔗 British Business Bank – Merchant Cash Advance
8. Revenue-Based Financing
How it works: Obtain capital in exchange for a percentage of future revenues until a predetermined amount is repaid.(weareuncapped.com)
Example: A SaaS company receives £100,000 and agrees to repay 6% of monthly revenue until £110,000 is repaid.
Pros: Flexible repayments; no equity dilution.
Cons: Total repayment can be higher than traditional loans; not ideal for low-margin businesses.
🔗 Uncapped – Revenue-Based Financing
9. Trade Credit (Supplier Financing)
How it works: Suppliers allow you to buy now and pay later, typically within 30 to 90 days.
Example: A retailer orders £5,000 worth of goods with payment terms of 60 days, selling products before payment is due.
Pros: Improves cash flow; interest-free if paid on time.
Cons: Late payments can harm supplier relationships and credit rating.
🔗 Experian – Trade Credit Guide
10. Reward-Based Crowdfunding
How it works: Raise funds by offering backers non-financial rewards, such as products or experiences.
Example: A tech startup raises £50,000 on Kickstarter by offering early access to their new gadget.
Pros: Validates market demand; no equity or debt involved.
Cons: Requires marketing effort; all-or-nothing funding models.
11. Equity Crowdfunding
How it works: Raise capital by offering shares to a large number of investors via online platforms.
Example: Monzo Bank raised funds through equity crowdfunding, allowing customers to become shareholders.(Turbo Crowd)
Pros: Access to capital and brand advocates; retains control over funding terms.
Cons: Dilution of ownership; regulatory compliance required.
12. Angel Investment
How it works: High-net-worth individuals invest in exchange for equity, often providing mentorship.
Example: An angel investor provides £100,000 to a fintech startup for a 15% equity stake, also offering industry expertise.
Pros: Access to capital and experience; flexible terms.
Cons: Equity dilution; potential for differing visions.
🔗 British Business Bank – Angel Investment
13. Venture Capital
How it works: Firms invest large sums in high-growth startups in exchange for equity.
Example: Deliveroo secured venture capital funding to expand its food delivery services across the UK.(British Business Bank)
Pros: Significant funding; strategic support.
Cons: Loss of control; high expectations for growth.
🔗 British Business Bank – Venture Capital
14. Business Grants
How it works: Non-repayable funds provided by government or organizations for specific purposes.
Example: A manufacturing firm receives a £10,000 grant to implement energy-efficient technologies.
Pros: No repayment; supports innovation and growth.
Cons: Competitive application process; specific eligibility criteria.
🔗 British Business Bank – Grants
15. Innovate UK Grants
How it works: Innovate UK provides government-funded grants to support UK businesses developing innovative products, processes, or services. These are typically for R&D, feasibility studies, or early-stage commercialisation.
Example: A cleantech company receives a £75,000 Innovate UK grant to develop and test a new carbon capture technology before going to market.
Pros: Non-dilutive (you don’t give away equity), Encourages innovation and competitiveness, Often opens the door to further investment
Cons: Competitive application process, Strict eligibility and compliance requirements, Requires technical documentation and progress reports
🔗 Innovate UK – Current Funding Opportunities
16. Local Enterprise Partnerships (LEPs)
How it works: LEPs are regional public-private partnerships that offer grants, loans, and business support to drive local economic development. They often work alongside councils and local growth hubs.
Example:A North East-based furniture manufacturer receives a £30,000 LEP grant to purchase new equipment and create five new jobs.
Pros:
Regionally targeted support
Often combines funding with mentoring or infrastructure access
Cons:
Funding varies significantly between regions
Application windows can be limited
LEP Network – Find Your Local LEP
17. Business Incubators & Accelerators
How it works: These are structured programmes that support early-stage businesses with mentoring, investment, office space, and access to networks. Accelerators are typically fixed-term and offer seed funding in exchange for equity.
Example:A digital health startup is accepted into a London accelerator programme, receiving £25,000 in seed funding and three months of mentoring from industry experts.
Pros:
Hands-on support, training, and exposure
Opens doors to future funding and partnerships
Cons:
Competitive entry process
Often requires giving up equity or attending full-time
Barclays Eagle Labs (example accelerator)
18. Peer-to-Peer (P2P) Lending
How it works: P2P lending connects businesses directly with investors via online platforms. Borrowers receive loans, and individual investors earn returns through interest repayments.
Example: An events company borrows £50,000 from individual investors on Funding Circle to expand its offering into hybrid/virtual events.
Pros:
Typically faster than bank loans
Flexible borrowing amounts and terms
Cons:
Interest rates depend on credit risk
Must still demonstrate repayment ability
19. Microloans (CDFIs – Community Development Finance Institutions)
How it works: Microloans are small, affordable loans offered by CDFIs to businesses that may not qualify for traditional finance, particularly in underserved or low-income areas.
Example: A startup florist receives a £7,500 microloan from a CDFI to cover premises renovation and initial stock.
Pros:
Accessible to new or underserved businesses
Personalised support often included
Cons:
Loan amounts are usually capped at £50,000
May carry slightly higher interest rates
Responsible Finance – Find a Local CDFI
20. R&D Tax Credits (HMRC)
How it works: UK businesses engaged in qualifying research and development activities can claim tax relief on eligible R&D costs. Loss-making businesses may receive a cash credit instead.
Example:A software company developing an innovative logistics platform claims £25,000 back through the SME R&D tax relief scheme.
Pros:
Can significantly reduce tax bills or generate cash
Encourages innovation and competitiveness
Cons:
Claims require documentation and technical detail
May need expert help to file properly
GOV.UK – Research and Development (R&D) Tax Relief
21. British Business Bank Finance Hub
How it works: This is an online tool provided by the British Business Bank to help businesses understand and compare different funding options — including government-backed schemes, equity, and lending products.
Example:A small construction company uses the Finance Hub to explore growth finance options and discovers they're eligible for a regional loan scheme.
Pros:
Central, trusted source of up-to-date finance information
Covers a wide range of funding types and stages
Cons:
Doesn’t offer funding itself
Requires the user to assess options independently