Financing Options for a Start-Up Business in the UK

The global start-up economy provides nearly £2.3 trillion in value every year, and investments are the key to so many businesses’ success. Start-ups are essential to economies the world over, and they can be hugely rewarding financially if you hit the market with the right product. 

But raising the initial finance to get your ideas off the ground is the first challenge. On average, a UK start-up will budget £5,000 to launch yet spend £22,756 on average in their first year. Luckily, there are numerous options to consider, to help you fund your dream venture. 

Self-financing with savings

One of the most popular ways for entrepreneurs to get their business ideas off the ground is to self-finance using personal savings. The benefit of this is that you will own 100% of the business and have complete creative control over all decisions. However, depending on your finances, putting enough into the business can be difficult and it could slow your growth. There’s also the risk that, should your business fail, you’ll lose all your savings in the process. 

Loans

If you need extra money to fund a car purchase, a home renovation or some other larger expense, you may turn to personal bank loans for the cash. However, most banks don’t offer personal loans for business purposes. Instead, there are other options, ranging from short to long-term loans depending on the amount borrowed.  

For example, a start-up loan is essentially a personal loan for business purposes, and so you will be personally liable for the repayments, but it does mean you don’t need to risk your personal assets as security in most cases. 

A guaranteed loan, however, is a loan backed by a third party which means if you can’t make the repayments, they will do so on your behalf. If you have a poor credit history, a guaranteed loan can make it easier to get funding. Guaranteed loans can be backed by a personal guarantor, such as a relative, a bank or a specialist insurance business. There are also government-backed business loans that enable small businesses to borrow between £2,000 and £50,000. 

Crowdfunding

Crowdfunding has become one of the most popular ways for start-ups to raise financing in recent years. With this option, a group of people invest in your business or idea and put money towards it to get it started. There are three forms of crowdfunding. 

The first is reward-based, such as platforms like Kickstarter and Indiegogo. With this option, you pitch your business to mini investors who will pledge a certain amount of money towards the project. The more money they pledge, the higher the reward they receive when the business goes live. While it can be incredibly successful, it’s not regulated and therefore can be risky. 

Equity share is the second form of crowdfunding, where investors take some equity in the business itself. The benefit is that, if the business does well, it will be rewarded financially but if it fails, they lose their investment. In the UK, this form of crowdfunding is regulated. 

Lastly, peer to peer crowdfunding works in a similar way to a loan, but you borrow from a group of people instead. The investors choose who they want to invest in and agree on an interest rate that’s agreeable with both parties. It provides a reliable revenue model for attracting investors. 

Grants

From government grants to sector-specific grants, start-ups have access to numerous funding opportunities in the UK. A grant differs from a loan in that you’re not expected to pay the money back, but they’re usually only available to businesses in specific industries or regions. The Prince’s Trust is one of the best-known grant providers, providing funding loans up to £5,000 along with training and mentoring for those aged 18-30. 

There’s also the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS), which are government-backed venture capital schemes. SEIS enables start-ups to raise funds of up to £150,000, while EIS allows funding to be raised up to £5m each year, and a maximum of £12m across the lifetime of the business. 

Accelerators

Business accelerator programmes are designed to help ambitious start-ups scale and grow, providing not only small seed investments in return for equity in the business but also mentoring and support services. 

Accelerator programmes provide structured training and expertise that can be incredibly valuable to business owners looking to grow. However, they typically come with a gruelling, intense application process so being accepted can be tough. 

Final thoughts

There are many options available to finance a small business – determining which one is best suited to your needs can often be the hardest part. But whether you’re looking for a short-term loan or a solution to help your business grow, start-ups can take advantage of countless financing options to raise the funds they need to bring a business to life.

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