How to get funding to start a business

Starting a business is exciting, but turning your vision into reality often requires more than just a great idea – it needs capital. While bootstrapping is always an option, securing external funding can provide the resources, support, and credibility to help your business grow faster and further. 

In this article, we’ll explain the various funding options available, how to assess which type of funding suits your needs, and how to secure the option you choose.

Why get funding to start a business?

If you’re looking to turn your business idea into reality, obtaining funding could help you hit the ground and grow faster. It could help you access resources you wouldn’t have been able to afford on your own. And it could reduce your personal financial risk.

Securing funding can be particularly valuable if you’re planning for big upfront costs – like buying equipment, hiring a team, or developing a product – before you can start making sales.

Funding can also provide a financial cushion, allowing you to focus on building the business without the immediate pressure of profitability. For example, if you’re developing a product that needs R&D, marketing, or regulatory approvals before sales can begin, external funding can bridge the gap between idea and income.

As well as providing the cash, funding can also bring with it mentorship, industry connections, and a credibility that helps your business thrive in ways bootstrapping might not.

But funding isn’t the right choice for everyone. The benefits often come with trade-offs. For example, taking on debt means you’ll need to manage repayments, which can add pressure to your cash flow. And equity funding requires giving up a share of your business and potentially some control over decisions. Investors may also expect quick returns or push for a strategy that doesn’t align with your long-term vision.

How to choose the right option for your business

For many entrepreneurs, the question isn’t just if they should seek funding, but how to find money to start a business in the first place.

If you do decide to get funding to start a business, the right choice will depend on:

• Your business stage: Are you pre-revenue, just launching, or already trading?

• How much control you want to keep: Do you want full decision-making power, or are you open to input from investors or lenders?

• Your risk tolerance: Can you handle personal guarantees, debt repayments, or the pressure of delivering returns to investors?

• What you’re willing to give up in return: Are you comfortable with repaying interest, giving away equity, or meeting grant conditions?

Each type of funding has its own advantages, costs, and implications. So ask yourself what you really need, how quickly you need it, and what you’re prepared to sacrifice to get it.

When deciding between personal, debt or equity financing, consider the following comparison:

Personal money

Bootstrapping

Relying on personal savings or early revenue to bootstrap your business could be the most cost-effective way to get started with limited funds. You won’t have to pay interest on a loan or give away equity to investors, and you won’t have to fill out any paperwork or wait for someone to assess your business case. But there are downsides – you’re putting your own finances at risk, and it may be harder to keep up with competitors who do use external funding. That said, bootstrapping is very common. Many founders use their own personal cash to fund their start up.

To bootstrap your business:

1. Decide how much of your personal savings you’re willing to risk and set a clear timeframe for your investment, so you don’t spend more than you can afford

2. Choose a legal structure that suits your needs, whether that’s operating as a sole trader for simplicity or setting up a limited company for better liability protection and a more professional image

3. Open a business bank account from day one to keep your personal and business finances separate, which simplifies accounting, tax filing, and future funding applications

4. Start small and focus on generating revenue quickly by offering services or products that don’t cost a lot upfront, so you can reinvest profits and grow organically

5. Keep your overheads low by working from home, using affordable tools, and avoiding unnecessary expenses until your business is consistently earning an income

6. Record your financial transactions, including any money you put into the business personally, so you stay organised for tax time and can track your progress

Friends and family

If you’re fortunate enough to have an able and supportive network of friends and family, asking them for funding could be one of the simplest and fastest ways to get your business off the ground. They could provide the cash as a loan, an equity investment, or even a gift, and it’s a popular choice for new businesses because it’s accessible and flexible. In fact, in 2025, 24% of start up founders got their start with friends and family funding.

Government grants and support

The UK government offers several schemes to help businesses bridge the gap between a great idea and a stable operation. While some are sector-specific, others provide a general safety net for first-time founders. When choosing a government scheme, always check if the support is a grant (free money), a loan (repayable), or a tax incentive (cash back on what you've already spent).

We’ve outlined some of your options below.

Start Up Loans

Start Up Loans provide government-backed personal loans and mentoring to help new and early-stage UK businesses get off the ground. You can borrow up to £25,000 at a fixed interest rate of 6% per year, with repayment terms of 1-5 years. The loan’s unsecured, and you retain full ownership of your business. Alongside funding, you’ll receive 12 months of free mentoring and support to help your business succeed. Since 2012, over 120,000 businesses have borrowed more than £1.2 billion through the scheme.

Innovate UK grants

Innovate UK grants help you fund the development of new, innovative products, services, or processes for your business. If you meet the criteria of one of its ‘competitions’, you could receive a grant of between £25,000 and £10 million. Unlike loans, you don’t have to repay the funding, and you keep full ownership of your business. Innovate UK provided over £1 billion of funding to 3,700 businesses in 2024/25.

R&D Tax Credits

R&D Tax Credits could help you reclaim up to 27% of your research and development costs towards new products, processes, or services (or improving existing ones). The government incentive is designed to support businesses like yours that are pushing boundaries, even if the project fails. Over 45,000 UK businesses claimed £7.6 billion of R&D Tax Credits in 2023/24.

Debt financing

Business loans

Business loans provide new UK start ups with upfront capital to cover costs like equipment, inventory, or premises. They function as fixed-term debt, where money is deposited into your business account and repaid via monthly instalments (including principal and interest) typically over 1-5 years. A simple loan helps you retain full ownership of your business, unlike equity funding, and offers predictable repayment schedules to help you budget. SMEs borrowed £4.6 billion from high street banks in Q1 2025.

To secure a business loan:

1. Choose the right type of loan for your needs, such as a working capital loan, which can cover short-term costs, or a standard bank loan, which may require trading history or collateral

2. Check your eligibility, as lenders will review your personal and business credit scores, trading performance, and business plan

3. Prepare a detailed business plan and cash flow forecast, as these are essential for most applications and demonstrate your ability to repay the loan

4. Gather required documents, including business registration details, personal ID, proof of address, bank statements, and your Unique Taxpayer Reference (UTR) number

5. Compare lenders and loan terms using a business loan calculator, as rates and requirements vary (government-backed schemes often offer more favourable terms for new businesses)

6. Submit your application online or through your chosen lender, and be ready to provide additional information or a personal guarantee if they request one

7. Await approval, which can take from a few days to several weeks depending on the lender and loan type

Peer-to-peer (P2P) lending

Peer-to-peer lending lets you borrow directly from individual investors through online platforms, cutting out traditional banks. It can be a flexible and quick way to secure funding for your new business, especially if you’ve struggled with bank loans or want more competitive rates. You’ll repay the loan with interest over an agreed term, all managed through the platform. If you go down this route, choose an FCA-authorised platform to ensure credibility and investor protection. In 2025, the UK P2P lending market was valued at $486 million.

Asset finance

Asset finance lets you get the equipment, vehicles, or machinery your business needs without paying the full cost upfront. Instead, you spread the payments over time, using the asset itself as security. It allows you to access things like vehicles, machinery and software without using your precious cash flow – useful if you’re just starting out and don’t have a long trading history. In 2024, UK SMEs secured £23.5 billion in asset finance.

To secure asset finance:

1. Identify the specific equipment or asset your business needs and confirm its cost

2. Approach lenders such as high-street banks, specialist providers, or brokers with details of the asset, your business plan, and up-to-date financials

3. Be prepared to provide personal guarantees or additional documentation if your business is new

4. Expect a quicker approval process compared to unsecured loans, as the asset itself often serves as security

5. Compare interest rates, repayment terms, and any fees to find the most suitable agreement for your business

6. Consider seeking advice from a financial advisor or broker to help you navigate the options

7. Explore potential tax relief benefits, as asset finance can sometimes offer cost-saving advantages for your business

Credit cards

Business credit cards give you a flexible way to cover your start up's everyday costs, using a revolving line of credit instead of dipping into your personal savings or taking out a loan. They’re a good way of keeping your business and personal finances separate too. Unlike personal cards, they often come with higher limits, detailed spending reports, and perks like cashback or travel points. In 2024, credit cards remained the most popular finance option for UK businesses, with 13% of smaller firms using them in Q3.

To get a business credit card:

1. Choose your provider and decide how to apply, whether online for the fastest option, by phone or in branch if available

2. Make sure you meet the basic requirements such as being 18+ and a UK resident with a UK-based business, and check if you need 12 or more months of trading history or a business bank account

3. Prepare all the necessary documents including your business registration details, personal ID, proof of address, bank statements, UTR number, business turnover, employee count, trading sector, and personal income

4. Complete and submit your application, and provide a personal guarantee if the provider requests one

5. Wait for the credit checks to be processed and you’ll usually receive an instant decision online with your card arriving in a few days if approved

Other flexible financing options

For businesses with existing card payment revenues, a merchant cash advance offers flexible repayment based on sales. A revolving credit facility provides ongoing access to funds as needed. And once you're trading, invoice finance can help manage cash flow by unlocking money tied up in unpaid invoices.

Equity financing

Angel investment

Angel investment involves an individual or a group of individuals, known as ‘angels’, investing their personal money into your business in exchange for equity, usually between 10% and 25%. Angels are often experienced entrepreneurs or professionals who not only provide capital, but also offer valuable mentorship, industry expertise, and access to their networks. Angel investment can be particularly attractive for businesses that are pre-revenue or pre-profit but have strong scalability and innovation potential. Be sure to familiarise yourself with the SEIS and EIS schemes, as these can make your opportunity more attractive to angels. As of mid-2025, the 10 most active angel networks in the UK funded 99 deals totalling £212 million.

Venture capital

Venture capital (VC) can provide millions in funding in exchange for a share of your business. Unlike a bank loan, VC investors become business partners, offering both capital and their expertise to help you grow. It’s an ambitious option to consider if you’re ready to scale fast and operate in a high-growth sector like AI, fintech, or biotech. UK VC investment reached £2.68 billion in just the first three months of 2024.

Crowdfunding

Crowdfunding lets new businesses raise capital by collecting smaller amounts of money from a large number of people, usually online. This can be in the form of donations, pre-orders, loans, or equity. It’s a flexible, accessible way to fund a start up. Select an FCA-authorised platform that fits your goals and make sure you meet HMRC’s SEIS or EIS criteria if you’re raising equity, to attract investors and stay compliant. The UK’s crowdfunding market is the largest in Europe, valued at $1.06 billion in 2024 and projected to double by 2033.

Expert insights

Jonny Seaman is an early-stage VC and was an investment expert at SeedLegals, where he helped hundreds of start ups with their funding rounds, from seed to Series A+. Previously, Jonny was a founder and led the Glasgow chapter of Startup Grind, supporting entrepreneurs in building their networks.

When’s the best time to raise funding?

Based on over £1bn raised through SeedLegals, there are three key fundraising spikes each year:

• End of the tax year (early April): Busy for SEIS/EIS rounds as investors rush to secure tax relief before the 5 April deadline

• Before summer holidays (end of June): Investors and founders push to close deals before the July-August break

• Run-up to Christmas: A final push to finalise deals before the festive shutdown

I’ve received a term sheet. What comes next?

First, celebrate! Then, prepare for negotiation. The term sheet outlines investment amount, valuation, board structure, and other key terms – all of which are open for discussion. Only agree to terms you’re comfortable with.

Once the terms are finalised, work with a trusted advisor or lawyer to review and draft the long-form documents (Shareholders Agreement, Articles of Association, and Resolutions). On average, funding rounds take about 55 days to close, so plan your cash flow accordingly.

Wrapping up

Thousands of founders across the UK raise money to start a new business every week. Some start small, relying on friends and family to provide a quick cash injection. Others prefer to pitch to angel investors or apply for government grants for larger amounts. There’s no overall ‘best’ way to get funding to start a business, and finding the option that feels right for you is most important.

Here’s a reminder of the key points:

• Getting funding to start a business can help accelerate growth, cover upfront costs, and reduce personal financial risk

• But there are potential downsides, such as giving up equity, taking on debt, or facing strict repayment terms

• Choosing the right type of funding involves weighing up how much control you want to keep, your risk tolerance, and what you’re willing to give in return

• The process of applying for funding varies, and might include preparing a business plan, pitching to investors, or meeting certain eligibility criteria

• If you’re not sure which route to take, seeking advice from a financial advisor or mentor can help you make an informed decision