Funding options for your business
There are different ways to fund a business. You may be able to get a grant, borrow money or find people who will invest in your idea.
Self-funding or bootstrapping
Most people rely on personal savings, assets or income to start and build a business without applying for external funding.
Advantages
- You keep full control of the business
- You avoid loan repayments and interest charges
- Having a personal financial stake in the business makes you more conscious of risk
- You keep full control of the business
- You avoid loan repayments and interest charges
- Having a personal financial stake in the business makes you more conscious of risk
Disadvantages
- Your personal savings or assets are at risk if the business struggles
- It may be harder to get the staff, premises or tools you need without extra funds
- You may not be able to build and grow as quickly as you’d like
- Your personal savings or assets are at risk if the business struggles
- It may be harder to get the staff, premises or tools you need without extra funds
- You may not be able to build and grow as quickly as you’d like
Grants
A grant is an award of money given to a business for a specific purpose. Your local business support service is a good place to find out about grants in your local area.
Advantages
- No debt - you do not have to pay grants back
- Targeted funding for specific activities – can be a good way to manage specific challenges, like digital transformation or energy efficiency
- Local or sectoral focus – often limited to businesses in a certain area or sector, so you may be well-positioned to apply
- No debt - you do not have to pay grants back
- Targeted funding for specific activities – can be a good way to manage specific challenges, like digital transformation or energy efficiency
- Local or sectoral focus – often limited to businesses in a certain area or sector, so you may be well-positioned to apply
Disadvantages
- Long application process – there may be a long application process and competition for funds
- Restrictions – grant funding typically has strict rules setting out what you can and cannot use it for
- Reporting requirements – you will usually have to submit detailed reports to funders showing how you’ve used the money
- Long application process – there may be a long application process and competition for funds
- Restrictions – grant funding typically has strict rules setting out what you can and cannot use it for
- Reporting requirements – you will usually have to submit detailed reports to funders showing how you’ve used the money
Loans
Loans are a type of debt financing. You borrow a lump sum and pay this back over time and with interest.
Some loans are government-backed, such as:
- Start Up Loans for new businesses and businesses trading for less than 3 years
- loans provided under the Growth Guarantee Scheme to support small UK businesses who want to invest and grow
Advantages
- Full control – you keep full control of the business
- Predictable repayments –a fixed repayment schedule means you know how much you’ll be paying towards the loan each month and for how long
- Availability – there is a wide range of loan funding available, although interest rates and terms will vary between providers
- Full control – you keep full control of the business
- Predictable repayments –a fixed repayment schedule means you know how much you’ll be paying towards the loan each month and for how long
- Availability – there is a wide range of loan funding available, although interest rates and terms will vary between providers
Disadvantages
- Debt – the full amount of the loan must be paid back as well as any interest and charges
- Affordability assessments – you, or your business, will need a good credit score and you’ll need to factor in repayments to your budgeting and cash flow forecasting
- Risk – some loans require security and any assets you register as security are at risk if you do not keep up repayments
- Debt – the full amount of the loan must be paid back as well as any interest and charges
- Affordability assessments – you, or your business, will need a good credit score and you’ll need to factor in repayments to your budgeting and cash flow forecasting
- Risk – some loans require security and any assets you register as security are at risk if you do not keep up repayments
Equity finance
Equity finance is when people invest money in your company in exchange for a share in ownership. This can include:
- crowdfunding, where you encourage investment from supporters and investors
- venture capital, which focuses on innovative, high-growth companies
- angel investment, where someone invests in your company for a small ownership stake and often provides guidance and mentorship
Advantages
- No repayments – you do not have to repay the money that investors give you
- Expertise and contacts – investors often bring industry expertise and connections which can help you expand and grow
- Access to future funding – successful investment can open the door to further investment and growth in the future
- No repayments – you do not have to repay the money that investors give you
- Expertise and contacts – investors often bring industry expertise and connections which can help you expand and grow
- Access to future funding – successful investment can open the door to further investment and growth in the future
Disadvantages
- Loss of control – equity finance usually involves giving investors a say in decision-making
- Pressure from investors – investors may expect quick growth and strong returns and you may feel pressure to deliver
- Complexity – your legal, reporting and management requirements will get more complex and time-consuming when you have external investors involved
- Loss of control – equity finance usually involves giving investors a say in decision-making
- Pressure from investors – investors may expect quick growth and strong returns and you may feel pressure to deliver
- Complexity – your legal, reporting and management requirements will get more complex and time-consuming when you have external investors involved
