So you’ve got your business idea in place – congratulations! You’re probably raring to get started in your exciting new venture – but before you get too giddy, it’s wise to be absolutely sure of where your startup funding is coming from.

Getting the right startup funding in place early can help you set up your company faster, and more securely – but where should you look and what are your options?

Here’s a quick run-through of some of the startup funding options available to you if you’re over 18 and live in the UK. Including sole trader grants and other types of small business aid.

Of course, many of these options are also available to you if you’ve already started your business and just looking for a financial boost to take your business on to the next level.

COVID-19 support

Before we get into the kind of grants, loans, and support available to small businesses and freelancers all year round, the government has made a number of support programs available in response to the 2020 COVID-19 pandemic. These include the Bounce Back Loan, the Job Retention Scheme, and the Self-Employment Income Support Scheme.

Startup Loan

The Bounce Back Loan (BBLS), Job Retention Scheme, and Self-Employment Income Support Scheme, vital during the pandemic's peak in 2020, have concluded. 

However, existing borrowers of BBLS have been offered Pay As You Grow (PAYG) options to help manage repayments more flexibly.

As of 2024, businesses focusing on recovery should note these programs' closure and explore current financial guidance, particularly on repaying loans or seeking alternative support measures. 

{{tax-guide}}

Venture Capital Schemes – Seed Enterprise Investment Scheme and Enterprise Investment Scheme

HMRC supports four venture capital schemes offering tax reliefs to investors for their investments in new shares, bonds, or assets within companies for a designated period. 

These include the Seed Enterprise Investment Scheme (SEIS), the Enterprise Investment Scheme (EIS), Social Investment Tax Relief (STR), and Venture Capital Trusts (VCT).

The Seed Enterprise Investment Scheme (SEIS) has been designed to boost economic growth by encouraging investment in small and early-stage companies through tax reliefs. 

Investors can now claim tax reliefs on investments up to £250,000 annually, enhancing the appeal for backing eligible companies. To qualify, a company must:

• Be in its initial trading stages for no more than three years.
• Possess no more than £350,000 in gross assets.
• Employ fewer than 25 full-time equivalent employees.
• Not have engaged in another trade previously.
• Not have received investment through EIS or a VCT prior.

The Enterprise Investment Scheme (EIS) targets larger companies, allowing them to raise up to £12 million. Similar to SEIS, it offers tax reliefs to investors, thereby facilitating the growth of businesses through substantial funding.

The Prince’s Trust

The Prince’s Trust supports young people aged 18 to 30 who want to set up their own business. You can apply to get between £1000 to £5000 if you’re unemployed or working less than 16 hours a week. You can’t apply if you’re on your gap year, if you’ve graduated with an undergraduate degree less than six months ago, or if you have a postgraduate degree or professional qualification.

Local authority startup schemes

Local authorities also provide schemes aimed at startups in their area – you can search for schemes local to you using the government’s Business Finance and Support Finder.

Additionally, blue-chip companies offer funding across a variety of sectors. Better Business Finance could help you find the right financial support to meet your business needs; they also host nationwide events aimed at startups and small businesses.

New Enterprise Allowance

The New Enterprise Allowance (NEA) was a scheme designed to help the long-term unemployed back to work by helping them set up their own business. Although now closed, unemployed people may be able to get Government help for starting their own businesses via other available resources and programs​.

This help includes guidance and support options such as:

• Assistance from local organisations and government-backed schemes.
• For Universal Credit recipients, a 12-month start-up period may apply, adjusting how earnings affect payments and exempting from other work searches.
• Support from a work coach specialised in self-employment.
• Businesses under 2 years old may qualify for a Start Up Loan.
• Disabled individuals or those with health conditions could access an Access to Work grant.

For a detailed overview of the available support and to explore your options, visit the official page at GOV.UK.

{{ltd-guide}}

Crowdfunding

Rather than take a hefty loan from the government or a financial institution, crowdfunding allows ordinary members of the public to back your idea by pre-ordering a product, by purchasing equity in your company or contributing towards a low-cost loan.

If you’re looking to go the pre-order route, Kickstarter is one place to look. If you want to sell a stake in your company check out Crowdcube or Seedrs. If you want a crowd-powered loan, Funding Circle is worth a look.

Although be aware that peer-to-peer lending is much riskier than traditional loans from banks, building societies or credit unions.

Many companies have used crowdfunding to enormous success, including these rather bizarre examples.

Traditional Bank Loans

The chances of a loan application for a startup being declined by a bank is notoriously high, especially since the financial crisis. That’s why if you’re hoping to get one, you need to be able to provide a clear, well thought out business plan explaining how you would use the money. This will also help you work out how much is a sensible amount to borrow. Having a good credit rating will also greatly increase your chances.

Of course, remember to shop around. Having existing accounts with a particular bank doesn’t mean you can’t explore the market.

Angel investment

This is basically the kind of investment that happens on Dragon’s Den. An ‘angel’ is not a supernatural being, rather a wealthy (but usually not super wealthy) investor, looking to get a higher return on their investment than they could in banks or property, for example.

Angels have deep pockets and will usually invest anywhere between £10,000 and £1 million. In return, they’ll expect a high return on their investment, usually expecting 2.5x their original investment. Although they may not ask for a huge amount of equity in the company, they’ll usually expect some say in key business decisions.

The problem with Angels is that they’re highly risk-averse. It will usually take them between three and six months of due diligence before they decide whether or not to invest, and they’re unlikely to make follow-up investments.

In terms of finding an Angel, they could be anyone, from a friend or nextdoor neighbour, to a serial entrepreneur found through the internet. Angels often invest through a network, as this gives them a greater pool of experience, which helps with due diligence. Some examples include Angels Den, AngelList and Angel Investors Network.

Venture capital investment

Venture capital is secured through venture capitalist (VC) firms, which are pools of income managed by a limited partnership or trust. Some examples include Founders Fund and ACCEL, members of which were early investors in Facebook.

The individuals who own these firms are some of the wealthiest people in the world, so there’s much more opportunity to get large amounts of funding – VCs tend to invest anywhere between £300,000 and £3 million on average, but have been known to fork out in excess of £20 million.

VC firms expect a lot for their money, however. They’ll expect rates of return between 38% and 48% a year, and will ask for a large chunk of equity to go with it. Be cautious that if you start giving over 50% equity to one party you risk losing control of your own company.

Although generally willing to take more risks than Angel investors, VCs will take often a painfully long time in scrutinising the ins and outs of your company before investing. Taking as long as a year in some cases, this can be an extremely frustrating process.

Borrowing from friends and family

Borrowing from friends and family is a very common way to start a business, be it a few hundred pounds for a laptop of tens, or thousands in exchange for a chunk of equity. Treat this in the same way you would treat any other approach to funding – even your loved ones won’t appreciate being taken for granted.

Prepare a business plan and make your case, specifying how long you need the money for and explain how their funds will be used to grow your company. You will need to convince them to invest in the same way you would for any other grant or loan. And it’s good practice to ensure you document the business agreement. It could save you an awkward conversation later on.

{{cta-newsletter}}

Regional funds

Most local authorities or sector-specific bodies now offer some kind of business development grants or support scheme. Everything from £5,000 for farmers and foresters to a freebie £250 for new businesses in the Merseyside area is up for grabs – check out the Gov.uk Finance Finder for schemes relevant to you.

Broadband

In 2018, the government announced a new nationwide Gigabit Broadband Voucher scheme (GBVS), backed by a £67m fund. The initiative aims to provide vouchers worth £4,500 for businesses to connect to the latest, fastest broadband.

This replaces the old Connection Voucher Scheme launched by the coalition government in 2013. Funding was pulled back in 2015, but the new GBVS looks like it’s here to stay. Check out the gigabitvoucher.culture.gov.uk website for more information.

Need more help starting your business?

Starting a business doesn’t have to be over-complicated. This jargon-free guide will show you how, with a little groundwork, you can have your own business up and running in a few hours.

We’ll run you through the legal ins and outs of starting a business, explain your options for company structures, naming your company, and how to get registered with HMRC.

Book a free consultation