How to Get Funding For A UK Business Start-up. The Complete Guide

As a new business owner, securing funding could be the remaining step to achieving success. While many individuals start their ventures with personal savings accumulated over several years, a lot still get some external finance to boost their enterprise. There are many types of funding you could get as a start-up in the UK. However, it is worth understanding what each entails before kick-starting the process.

In this guide, we will explore all you need to know about getting funding as a start-up in the UK.

8 Ways to Get Funding for Your UK Business Start-up

There are many ways to get funding for your start-up business in the UK. Here are some of them.

1. Small Business Loans

This is the most common type of business funding in the UK and it involves borrowing start-up funds for commercial or business purposes and not for individual use. There are several types of business loan providers, however,  banks remain the most common enterprise that offers loans to small businesses. With most UK banks, you can borrow from £1000 to £3M or more.

This usually would need to be repaid over a period of a month to 15 years. There are 2 forms of business loans, secured and unsecured loans. Unsecured loans are the type of loans that allow businesses to borrow funds without having to provide a form of security.

As such businesses do not need to offer their assets as a form of security in order to receive the loan. The secured loans, on the other hand, require some form of security and as such, the business must render its assets as a form of security before it could get the loan.

For either of the types of loans that you wish to go for, you would need to pay an interest. This could be a fixed or variable interest.

For a fixed interest, you would be required to pay a particular amount of interest on the loan over a period of time. However, for a variable interest, the amount of interest to be paid could vary over time, that is, it could go up and down.

2. Government Business Loans

Apart from sourcing loans from banks, the UK government also offers low-risk loans to small businesses. This loan scheme has served more than 50,000 businesses all over the UK since its inception and it can only be used by businesses that have been operating for not more than 2 years. This simply means that if your business has existed for more than 24 months and needs more funds, you might not be qualified for this.

With this loan scheme, you could borrow up to £25,000 with a fixed rate of 6%. Also, you can repay the loan between one to five years, although there are certain guidelines that must be met. For instance, you can’t use this form of loan to repay another debt or attain an industry qualification.

To apply for this type of loan, simply login to the government start-up loan website and complete the company’s application form. You will be required to provide information about your business and how much you would need to borrow. You will also be provided with a personal advisor who will guide you throughout the process. Apart from that, you would need to go through a credit card check to ascertain your eligibility for the loan.

3. Crowdfunding

Apart from sourcing for loans, another good way to get funding for your start-up business is through crowdfunding. With modern technologies, it is quite easy to get funds through this means. Crowdfunding involves the process of seeking funds from a large number of people.

With it,  small donations are gathered from numerous audiences to support a business. This type of money usually isn’t repaid as many donors are involved, moreover, this kind of support is given by people who like your business idea and are willing to contribute towards your cause.

There are now numerous crowdfunding websites where you can register to get funds. Some of them include GoFundMe, Kickstarter etc. Several of these crowdfunding platforms have their unique requirements and the business ideas that they support.

Once you’ve registered on any of them, you will be required to pitch your idea to the donors. Crowdfunding is generally much easier; however, you can only have access to the amount you need which you would have already set before the crowdfunding campaign. This means if after the donations, you got more than the required amount, you would only be able to withdraw the amount of funds needed.

4. Angel Investors

Angel investors are wealthy, experienced and successful individuals who provide funds to start up businesses at their early stage in exchange for a share of the business. Typically, they provide their support to the business and most times are willing to take a higher stake in the business.

For example, they could take up to 10% to 25% of business equity; however, they are also willing to provide the mentorship, skills, knowledge etc that is required for the business to succeed. They are more like a silent business partner who is willing to provide support or funds for a business in exchange for what they could get out of it.

Usually, businesses could get funds from an angel or syndicate angels working together as one. Where a syndicate angel is involved, a lead angel will be appointed to act as a main representative for others. According to the British business bank, while an angel investor could offer up to £15,000  to £500,000 for funding, a syndicate could offer up to £2 million.

5. Government Small Business Grants

There are many grant schemes within the UK offering funds to small business owners. An essential benefit of grants as compared to some other finance is that you don’t have to repay them. However, there might be some form of attached guidelines on how the money can be used and the amount that can be gotten. Grants most times aren’t easy to come by but you could gain more handy details by contacting your local council or visiting the UK government finance and support database. Some of the UK grant schemes include InnovateUK, The Lottery Heritage Fund, The Princes Funds etc. The eligibility criteria for each grant could differ, however, most of them require an explicit business plan that will indicate that your business idea is worth the investment.

6. Venture capital

Just like angel investors, venture capitalists also provide funding in exchange for business equity. However, they offer more funding to businesses than angel investors and they tend to focus on start-ups that have a high potential to grow fast. Venture capitalists usually would provide funding to a business within a period of 5 to 10 years starting with a minimal investment before proceeding to a huge one. As such they expect that there should be some form of growth and a return on investment during the first cycle when a business gets funds.

VCs most times are supported by Enterprise Investment Scheme (EIS), Venture Capital Trust (VCT) etc. To use this funding type, you must be willing to allocate a board space to the VC. This is to allow them to have control over how the business is being run and help achieve the business goals quickly.

7. Bootstrapping

Unlike other funding types, bootstrapping doesn’t involve sourcing finance from others but entails using the available resources from your means like personal savings to start a business. According to a survey carried out by the British Business Bank, about 72% of businesses that started their businesses around 2015 to 2020 used personal savings to fund their businesses.

Some of the notable big businesses today that use this approach include Apple, GoPro, Spanx etc. If you will be starting your business on a small scale and you do not necessarily need to invest with large capital to succeed, then you could try bootstrapping while also reinvesting the profits made from it back into the business.

8. Family and Friends

Apart from relying on personal funding, sourcing from friends and families is another way to raise finance for your new start-up. It generally involves pitching your business ideas to your loved ones and seeking support. You would also usually be required to reach an agreement with them. However, unlike some other forms of funding, you do not need to do much paperwork to secure it. Just like business loans, you would need to pay interest which would be agreed upon earlier unless the fund provider doesn’t require it.

Tips for Getting Funding for Your UK Business Start-up

• Build a good credit score

Depending on the type of funding that you get, you might need to meet up with some credit score requirements. This could involve improving your personal and business credit score. If you are bothered that your credit score could affect your chances of getting funding, there are certain steps you could follow to put you on the right track. This could include paying your bills regularly, adjusting inaccuracy on your credit report etc.

1. Create a Business Plan

You would also need to prepare an explicit business plan. This should detail your business strategy, explain your business goals and how you wish to achieve them. Furthermore, you should be able to demonstrate the ability to effectively manage the business funds, income, and expenses, loans, etc. Some of the important components of a business plan which you should include are market analysis, executive summary, SWOT analysis, marketing and sales strategy, product and services, etc.

2. Be Sure How to Use the Fund

When getting funds, you should clearly understand how much in total you will need and what aspect of the business you would to use the finance for. All of these should be contained in the business plan. Getting funds that are more or less than the needed amount might not be a great one as it could hinder the business growth.

3. Prepare all the necessary documents

Ultimately you would need to present some essential documents before you can access some type of funding. Whether you are getting a loan or grant or you wish to source funds through venture capital or angel investors, you would need to prepare some documents. Depending on the one you use, you would need to prepare documents such as articles of association, business income tax returns, federal tax ID, business licences, business plans, etc.

4. Prepare a collateral

If you are going for a loan, then you will need to present collateral which will serve as a form of security. This collateral, which is usually a business asset, would be used as a backup in case you’re unable to repay the loan. While many lenders would require you to provide this, there are still some enterprises that would give you unsecured loans.

5. Determine the funding source suitable for your business needs

As earlier explained, there are several types of funding sources each with their varying pros and cons. If you wish to get funding through angel investors or venture capital, then you should understand that you might have to provide an equity share.

Getting a grant also isn’t very easy compared to other sources. Bootstrapping and funds from families and friends could be great; however, you might not be able to raise the needed amount through this means. While all of the funding means have their advantages and disadvantages, you will always find a suitable one for your business.

Importance of Getting Funding for Your UK Business Start-up

1. Having access to funding could help your business grow at a faster rate. With it, you would be able to invest in the machines and equipment needed, improve your marketing strategy etc.
2. Access to funding could help prevent your business from any unexpected costs.  Apart from that it could keep the business flowing smoothly with enough cash flow.
3. Some form of funding like angel investors, venture capital and loans from banks could come with some kind of mentorship which is vital to the business's success.
4. Generally, funding makes it possible for many business ideas to come into practice. Without adequate funding, many ideas wouldn’t even be materialised.

Conclusion

While there are several sources from which funds can be obtained, understanding how each works is important. Apart from that, taking note of their unique requirement before submitting your funding application is vital. There you have it how to get funding for a UK business start-up. Do have any questions on sourcing funding for your UK business? Kindly contact one of our experts here for assistance.