Best 18 Sources of Business Funding in UK

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Fiance is one of the fundamentals of business success. Whether you are starting up new or wants to carry out expansion project, you need fiance. The earlier get your hands on funds, the quicker you get down to business. However, figuring out what sources of funding are available, and the ones favourable to you as a business owner is usually a heavy task than you might first think.

Debt, grant and equity are generally the primary forms of financing available to small businesses. We have helped you compile list of 18 best sources of finance for your business, and how to access them.

Best Sources of Business Funding

  • Family and friends
  • Small business loans
  • Startup loans
  • Small business grants
  • Business competitions
  • Business accelerators
  • Crowdfunding
  • Business overdrafts
  • Venture capitalists
  • Business credit cards
  • Business angels
  • Invoice finance
  • Asset-based lending
  • Hire purchase
  • Finance lease
  • Commercial mortgage
  • Merchant cash advance
  • Tax breaks
  • Shares

1. Friends and Family

Friends and family is the easiest source of raising business capital. Most times, such loan don't attract interest, and repayment period is not usually fixed. This is a convenient and source of business finance for startups who may not meet up qualification criteria for other sources of business finance.

2. Small business loans

Traditional business loans, provided you can get them at a reasonable rate, are still an excellent way to raise finance for your venture, particularly if you are already generating revenue. Remember that any loan is debt finance which you are obliged to pay back (companies like LearnBonds also compare payday loans online). Carefully review any terms you agree to and, when possible, try to find other forms of finance before you consider taking on any debt.

3. Startup loans

If you are just setting up your business, Startup loans should be one sources of funding you should consider because it is easily accessible, and  at this point of your business life it may be difficult to secure financing from some other sources. Startup Loans Scheme is a government stimulus package that gives small business startups access to soft loans. The scheme is an excellent way to fund a new venture or expand an existing small business. 

Startup entrepreneurs can access up to £10,000  loan, while existing businesses looking for funds for expansion can get up to £25,000. The terms are also usually not stringent compared to traditional lenders. The loan also comes with 12-months free mentoring, which is invaluable for new entrepreneurs.

But the disadvantage of Startup loan is that debt liability is on the name of the  entrepreneur, not on his company. 

4. Small business grants (Government and private)

The UK government, local authorities and private organisations provide funding and grant opportunities to small businesses (both new and existing) across the country. These grants are available for businesses who are making impacts economic growth in a particular area or nationwide, or with technolohical innovative ideas  in a specific field or helping the disadvantaged.

To qualify  for a small business grant, you must meet the grant-specific criteria. You’ll then need to apply and undergo a vetting process. The beauty of grant funding is that it’s effectively free money that does not require the beneficiaries to pay back.

But then, sometimes grants are not the right funding route for your business due some specific requirements and the rigorous processes of application, processing of the loan. Consider whether you can afford to waste the time it takes to apply for a grant, should you be unsuccessful.

4. Business competitions 

There are a significant number of business competitions for SMEs in the UK. Winners can receive substantial funding, as well as business advice and support, mentoring, and the press. Competitions typically offer prizes in the form of a lump sum of up to £ 1 million, depending on the sponsoring organization. These competitions are generally aimed at startups and young companies in a specific field. Some are only available to companies, industries or projects with specific goals.

5. Business Accelerators

 A business accelerator is a program that offers young startups a small investment in return for capital as well as mentoring, office space and network access that enable them to be sustainable and self-sufficient in the long term. This initiative also provides access to future investors once they are entrepreneurs. You have completed the acceleration program. Business accelerators can be a great way to grow your startup business. Note, however, that beyond the acceleration program, the failure rate is exceptionally high; Many companies are struggling to move from the high levels of support they receive under the program to full autonomy. 

6. Crowdfunding

Crowdfunding provides platforms where small businesses receive funding through contributions from individual investors or purchasers. Investors receive equity share in the business, benefits or rewards in exchange for their capital. This is an excellent alternative finance for small businesses. Useful platforms for crowdfunding a project are Kickstarter, Seedrs, Crowdcube and IndieGoGo. 

The downside of it is that It takes a lot of preparation and marketing to create and run a successful crowdfunding campaign.

7. Business Overdrafts 

Business overdrafts are indeed a super fast way to get a loan. When your balance reaches zero, you can continue to make payments up to the limit set up with your bank known as the facility. An overdraft facility is a useful option if your business operations involve seasonal activities where you may experience short-term liquidity shortages. If your company needs an  credit function to operate then this is probably the best solution for you. Keep in mind that this type of financing usually has higher interest rates than conventional loans. Also, many banks charge an overdraft fee in addition to interest. The bank can also demand full repayment of the amount owed at any time, which means that the financing is associated with a considerable risk. Business overdrafts are usually unavailable to startups.

8. Venture capitalists 

Venture capitalists invest huge sums of money in emerging or expanding companies with tremendous growth and traction potential, and typically invest much more capital than angel investors. They usually invest in tech and innovative companies. They are the core investors in Airbnb, Facebook and Spotify. As with angel investors, there is no obligation to repay the investment if your startup flops. Venture capitalists are attractive because they have considerable business knowledge, large sums of capital to offer, and often ready to take much higher risk. Venture capitalists expect substantial returns and want a clear exit plan in the form of buying or selling stocks. These are professional investors who want a solid business plan and strong accounts. Usually reserved for more advanced technology companies. It is often more complicated because who are ready to provide such large sums of money also want more control over their investments and, therefore, within your business.

9. Business Credit Cards 

Business credit cards can be a useful source of finance for entrepreneurs. Credit card limits can go up to £ 10,000, which is practically free money, as long as you pay off the debt within the interest-free time, you should avoid using business credit cards. start a business. Interest rates are high with strict repayment deadlines; The annual percentage rate (APR) can exceed 20% and the interest-free period is typically 30 to 45 days. If you don't pay, you can easily get into large debts, which can also have a negative and lasting effect on your company's creditworthiness. If you are a business and need such a service, this can be a viable alternative to an overdraft because you can pay it monthly. For temporary, short-term use, it's a great way to increase your instant spending power.

10. Business angels

Business angels are private investors who invest in startups and small companies in return for an equity stake up to 20%. Apart from funds, Business angles also provide business advice and membership to startups and small businesses for the success of the business projects.

Business angels funding usually ranges from £5,000 to £150,000; the higher end often comes under SEIS. Before accepting funding from such source, bears in mind that your are going to dilute your ownership powers in the company by virtue of their equity stake. Business angels are advantageous as they are usually willing to take far bigger risks than banks. There’s also no obligation to pay back the invested capital if the venture fails.

11. Invoice Finance 

If your business object is trading and generating revenue, invoice finance is a fantastic way to improve your cash flow and raise funds quickly, especially for service campanies with long invoice payment terms of 1-3 months. In invioce payment, a third party buys unpaid bills owed to your company. They pay you up to 85% of the value immediately and the rest after paying the invoice minus a fee. Payment flows in which customers often pay late or have longer payment terms, invoice finance is a very good way to raise funds. In addition, many agreements protect the company from debt if customers fail to pay their bills. But to get invoice finance, you need to prove that your  customers generally pay their bills consistently. Financiers want to see detailed bills before they buy your bill as a debt, so make sure your finances are in good shape. There are two different forms of this type of financing, invoice discounting and factoring.

12. Asset-Based Lending 

Asset-based loans are a form of asset finance that enables a company to free up cash from its existing assets. If you are unable to pay up loan in which you used  an asset as collateral, you can sell the asset to an asset finance company for a sum huge sum, pay up your loan. You then lease the asset from the supplier for an agreed period of time. If your business has a variety of assets such as real estate or vehicles, you can use these items as collateral or collateral to secure a reasonable amount of business credit, depending on the value of your assets. This method is known as asset refinancing. Much like a mortgage, companies often take out asset-based loans by depositing physical assets as collateral in order to gain access to a loan from an asset finance company. 

13. Hire Purchase 

Hire purchase is another form of asset finance that allows businesses to spread the cost of a particular asset over a period of time. An asset finance provider agrees to buy the asset for the company directly against a down payment, typically 10% of the purchase price. The company must then repay the remaining value of the asset on regular installments with a final payment at the end of the lease term. After this final payment, the company takes ownership of the asset. Hire purchase is a useful form of funding for businesses that don't have enough capital for the items they need. You must pay the full value of the asset on the date of purchase over time, even if its value depreciates. Contract purchase assets appear as an asset on your balance sheet during the lease term and the hire purchase amount is shown as a liability, less HP payments already made. For this reason, it is worth considering whether you will need the asset for the long term - otherwise it may be more profitable to use a lease. The repayment options for hire purchase are usually flexible in terms of quantity and frequency. The payment period is usually between 1 and 5 years. Read Factors to Consider in Hire Purchase.

14. Finance lease

Finance leasing is a cheap option for companies that do not have the capital to purchase the assets when companies can only use the assets for a limited period of time. Instead of paying an upfront fee and repaying the full value of the asset, the company leases the asset for a period of time and only covers the value of the asset within that period. The main difference between this form of financing and  hire purchase is that in a finance lease the company never intends to sell the asset at the end of the lease term. In some cases, the financial firm may offer the company a portion of the asset's sale value. A lease is suitable for larger assets that your company needs for a limited period of time. Since you do not technically own the asset, you do not need to include it on your balance sheet. This means that you have to pay the rental costs of the property. or you end up on your profits, which can be a significant tax advantage.

15. Commercial Mortgages 

If you intend to invest in real estate, you may consider taking a commercial mortgage. You can borrow up to 75% of the property's value, or up to 65% if you are generating rental income from the property. Commercial mortgages have higher interest rates than personal mortgages. They are considered high risk - this is why a commercial mortgage is a form of secured loan where the property is used as collateral. If you can no longer pay your mortgage, you will lose ownership of the property to the lender. Commercial mortgages are more attractive than commercial loans because they offer lower interest rates that are tax deductible. You can also rent the property to cover your mortgage payments. If your interest rates go up, it may also reflect the increase in rent you are charging on the property. Mortgages can be extremely complicated. Many mortgages require you to offer additional collateral compared to other fixed assets. A mortgage broker can help you find the best mortgage loan to value ratio (LTV) that is right for your business and make sure you fully understand all of the payment terms.

Read also: Top Global Venture Funds for Agribusiness

16. Merchant Cash Advance

A merchant cash advance is a form of financing that allows businesses to receive funds in exchange for a percentage of their daily credit card income. The amounts are based on the ticket sales. A Merchant Cash Advance provider works through your card terminal provider and offers you a flat-rate advance based on your average monthly card sales. in relation to income and provides a safety net for companies with fluctuating cash flow. take the payment every working day until the loan is paid off.

17. Tax breaks

Tax breaks are an indirect source of corporate finance. Lowering your tax bill opens up funds that you can use in other areas of your business. Tax breaks for SMEs include the Employment Allowance, which allows eligible employers to reduce their social security obligation up to a certain threshold, and the Annual Investment Allowance (AEI), which allows you to deduct the value of items before tax. Certain tax breaks can also help you secure investments by attracting individual investors to your company. The Seed Enterprise Investment Scheme (SEIS), for example, offers significant tax breaks to investors who buy shares  your company. You can typically receive up to £ 150,000 in funds through SEIS.


A company can easily raise long-term capital through securities than through borrowing. Common stock is the cheapest source of capital for large corporations, and it’s also non-refundable. It has so many other advantages. Such source of finance is only available to public limited liability companies.

Read also: Top Business Funding Software Tools | Get Funding for Your Business in Minutes

Ikechukwu Evegbu

Ikechukwu Evegbu is a graduate of Statistics with over 10 years experience as Data Analyst. Worked with Nigeria's Federal Ministry of Agriculture and Rural Development. A prolific business development content writer. He's the Editor, Business Compiler

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