Nearly 600,000 businesses were started in the UK in 2017. The vast majority will be funded by the entrepreneurs themselves or family and friends but nearly a quarter will have missed out on a new business opportunity through a lack of financial investment, costing them an average of £78,942 a year.

To get started, you might not need much funding, just enough to test and prove the idea works before you start raising capital. A solid business plan will help you size up how much money you’ll need to build your business and trade in the first couple of years. Thinking about your expenses from the beginning and how you can control your costs will also reduce the amount you need. Starling’s business account, which is fee-free for businesses with fewer than 10 employees, can help you keep on top of the figures with real-time notifications every time money leaves or enters your account, the ability to categorise different transactions and the option to export your figures to share with an accountant.

From government-backed programmes to private investment networks, there are lots of initiatives aimed at getting new businesses off the ground. This can be overwhelming and you need to work out which ones best suit your idea.

By playing this video you agree to YouTube's use of cookies. This use may include analytics, personalisation and ads.

In our Business Talks series, we examine what it’s like to start a business, so here’s a simple breakdown of just a few of the funding options available:

Government grants near you

You can search for local and regional grants using this UK government tool, filtering the search results to suit the size, industry and age of your business. This list includes grants from the UK government, Welsh Assembly, Scottish Parliament and Northern Irish Assembly so the eligibility criteria vary from provider to provider.

Regional Growth Fund

For businesses who have a plan to create or safeguard jobs and are looking for less than £1 million, finance could be secured through the government’s Regional Growth Fund (RGF) scheme. Additional requirements are that you’re based in England and that the money must be for strengthening or growing your venture. You also need to show you are investing private capital, that you’ve been unable to find funding elsewhere and that you meet the government’s rules for receiving state aid. There may be additional criteria depending on where regionally you make your application.

Start Up Loans

Government-backed Start Up Loans are – as their name suggests – aimed at starting or growing your business. Through this option you could secure a loan of between £500 and £25,000 – the average amount loaned is £7,200 – and there’s no fee to apply. As part of the package you get a delivery partner, an experienced business adviser and the option of 12 months of one-to-one mentoring.

This type of loan is repayable over a period of 1-5 years and there’s no charge for early repayment. It’s an unsecured personal loan and you’ll be charged a fixed interest rate of 6% a year.

To be eligible for a Start Up Loan you need to live in the UK and be over 18 years of age. If you already have a UK-based business, it needs to have been fully trading for under 24 months. You’ll also be credit checked and will have to submit a business plan, cashflow forecast and personal survival budget as part of your online application.

The Prince’s Trust is a delivery partner of the Start Up Loans scheme and, as part of its entrepreneur programme, offers loans of up to £5,000 at 6.2% APR representative and grants in special circumstances to 18-30-year-olds starting a business. The charity’s start up initiative is about more than just seed money: training courses, mentors, coaches and expert advice come as part of the package to take you from idea to launch.

The British Business Bank, which delivers Start Up Loans, also offers a scale up service to existing and expanding small businesses looking for investment. The government-owned development bank provides guarantees and finance to support its funding partners which allow them to lend or invest more and you can search for a partner by region or stage of your business.

UK Export Finance

If your business exports goods or services, government support may be available. UK Export Finance (UKEF) can support a line of credit with some UK banks to give UK exporters access to working capital. In this programme, a bank will loan money to the UK-based exporter to produce goods and services to be sold to an overseas buyer. This buyer will then pay back the bank who is acting as the borrower. It may sound complicated, but the important thing is that UKEF underwrites the loan, making it less risky for the bank, therefore encouraging them to lend.

UKEF can also help insure your small export business against the risk of not being paid or not being able to meet a contract. A list of the export markets covered by this scheme is available here. To find out if your business is eligible, it’s best to contact a regional UKEF representative.

Venture Capital and equity finance

Small businesses may seek funding from venture capitalists (VCs) who invest their money in innovative businesses at an early stage in return for a share of equity. As such, this option may suit startups who need to move quickly, perhaps to take advantage of an opportunity to grow. The UK and London, in particular, are currently the most popular destinations in Europe for tech investors with VC investment here reaching an all-time high in 2017.

To get access to this kind of investment, the British Private Equity & Venture Capital Association has a wealth of information. Business incubators and accelerators, which often offer a combination of strategic and financial support to new, innovative businesses, can also open doors. Networks of funders, such as Seedcamp which represents more than 30 early-stage investors, are open to applications from small businesses and often focus on those developing digital tools or services.

While VCs tend to make bigger investments, an angel investor may invest in a business in return for equity before it’s making a profit or any revenue if it has proven its concept and attracted consumer interest. According to the UK Business Angels Association, which has a members directory to search for leads, angel investors put an estimated £1.5 billion per annum into UK businesses. This can be an option for startups who are looking for smaller sums of initial investment and angels could be found in your personal or professional networks.

Alternative sources

While these are just a handful of ways that small businesses might secure investment, new tools for raising funds and alternative sources of finance are changing the funding landscape.

Crowdfunding follows in the footsteps of equity finance by allowing many people to invest smaller-sized amounts in return for equity or other non-financial rewards. Crowdfunding platforms, such as CrowdCube and Seedrs, allow you to share details of your business and funding target with potential investors and show what rewards or relief they might receive in return.

The Financial Conduct Authority only regulates certain forms of crowdfunding so it’s best for investors and small businesses alike to check how this might affect their efforts. If you decide to go down this route, you’ll need a strong marketing and PR campaign to publicise your crowdfunding efforts and attract investors as there’s a limited timeframe in which to raise to funds.

Entrepreneurs may turn to peer-to-peer lending services which allow an individual or groups of people to loan money to new businesses. Some even involve government investment. This type of finance may appeal as a more instant and flexible alternative to a hard-to-secure bank loan but it can be an expensive way to borrow with lenders and services able to set their own interest and repayment terms.

Meanwhile, small businesses that already use Paypal could take advantage of its working capital scheme. You can apply for a cash advance based on the volume of sales you make through PayPal and with a repayment plan tied to your future PayPal income. It’s worth keeping an eye on what products like this and other e-commerce platforms do in this space to see what new options become available for funding your business.

Subscribeto blog updatesarrow-rightGrow your businessHelpful free business guidesarrow-right

Related stories

Latest posts