Start up business loans and other funding options

Start up business loans and other funding options


min read

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Launching a new business is thrilling thing to do. Nearly half a million UK entrepreneurs have a go each year, arming themselves with ideas, business plans and research. Many succeed – according to the "Business population estimates for the UK and regions 2021" governement's report, in October 2021 there were 5.6 million small businesses in Britain. But many fail – 60 percent of UK start-ups go under in their first three years, often due to funding problems.

If you’re thinking about striking out on your own, do your homework. Along with organisation, planning and having a great idea, funding is often the cornerstone of the start-up and not easy to obtain. But without money to make things happen, those ideas may stay stuck on the drawing board.

Thankfully, there are more options now than ever. From business loans and grants to crowdfunding and angel investors.

Start-up funding quick-fire facts

  • Start-up loans for new businesses can be crucial methods of getting new ventures off the ground
  • Credit facilities provide flexible ways to borrow money
  • There are numerous government grants to help start-up businesses
  • Crowdfunding offers a non-traditional way to fund start-ups
  • Angel investors can help start-ups to flourish

Start-up business loans

Start-up business loans are highly sought after and can be a crucial element in getting a new venture off the ground. But founders can struggle to find firms willing to offer lending facilities to help build and grow untested businesses. This is because they're unlikely to have a record of trading that shows the business model is profitable.

You can get around this with a highly robust business plan, but sales records of some kind will still be crucial.

Alternatively, you can apply for a government-backed Start Up Loan on for sums ranging from £500 to £25,000. This is an unsecured personal loan that the individual is liable for repaying. Successful applicants also benefit from support and guidance helplines, and even 12 months of free mentoring.

More options become available the longer you’ve been trading, so if it’s possible to boot-strap the business (run it using funds you already have) in its infancy, many alternative lenders will be able to help once the company has a history of successful trading.

Credit line

‘Credit line’ is another way of saying ‘credit facility’. Put simply, it’s a flexible way to borrow money and can suit the needs of a small business looking for short-term start-up funding to cover various outgoings and overheads. Once approved, you’ll be given a credit line you can draw down from whenever you need, which can be used to pay for whatever you need.

A line of credit is usually a form of unsecured lending, which means that the money you borrow is not secured against an asset. You will have to sign a personal guarantee, so be aware that this means you are both personally and legally responsible for repaying the borrowed sum. With lines of credit you can often top up your loan, so it's a flexible option that can help cover day-to-day expenses.

At iwoca we call our credit facility a 'Flexi–Loan', once approved you have 7 days to withdraw as much as you like up to your credit limit. The added benefit is that once you have repaid at least one third of your credit limit, you can gain access to more funds through your account. This will be subject to a quick credit review to make sure your business is still running smoothly and that we are offering the best loan possible for you.



There are lots of government grants available for small business start-ups. The majority of these are given to people looking to start a new business, with the big picture being job generation and a stimulated UK economy.

Help with trawling through the myriad of grants on offer is available online including via government websites, such as Grants of this nature can help to reduce start-up costs, contribute to a growing business and save you money. But the application processes and various stages is often complex, not least because each grant comes with its own qualifying criteria.

It will come as no surprise that the bigger the grant, the more complicated the application process and eligibility measures. At the very least you will need:

  • a solid business plan
  • a usage plan for the grant funds
  • a seperate funding stream to match any fund offered
  • time to assess the critera and apply to the most relevant grants

Government-backed schemes usually come in three forms. Direct grants are allocations of money to cover a start-up's very early costs. This might include buying equipment, paying staff, or investing in stock. Most will come with the understanding that your business will match half the grant's value with your own funds.

Equity finance is not technically a grant. Instead, the government allows a reduction of income tax on any investment in the new businesses of up to £100,000.

Finally, there's government-backed soft loans, which are essentially business loans with below-market rates of interest. They also come with flexible terms. The government's Start Up Loan scheme (above) is an example of this.

Start-up crowdfunding

Funding for your small business start-up doesn’t have to come from a traditional source, like a bank or a grant. One option worth exploring is crowdfunding.

There are lots of different kinds of crowdfunding but, in essence, it works like this: people who want to raise money can pitch for it by posting details of their business on a crowdfunding website. Members of that website's community then – through a variety of methods – have the ability to communally fund the project by pledging their cash.

The various kinds of crowdfunding include:

  • Equity-based – the lenders buy a stake in the company. For example, Crowdcube.
  • Loan-based – the lenders earn interest on the money they put forward. For example, Funding Circle.
  • Donation-based – the lenders donate money because they believe in the cause and want to see it succeed. For example, GoFundMe.
  • Reward-based – the lenders receive an exclusive reward or gift in exchange for their funding. For example, Kickstarter.

In all cases, it's key to have a detailed description of your business that will appeal to a broad audience. Again, that business plan is key. Try to put yourself in the shoes of your funders and ask yourself: how much money do you need? How will it be spent? What will the returns be? How long will those returns take to materialise?

Remember: be really specific about your goals, aim to inspire your funders and be professional.

Start-up angel investment and venture capital

A start-up angel investor can be a gift from heaven, albeit in a more ordinary form. Angel investors come in all shapes and sizes and need not be seasoned entrepreneurs or large venture capital (VC) operations. They just need to be someone with cash to invest in your business in return for a slice of the pie – who you're willing to invite into your business.

Think about all the potential angels you might know. It could be a wealthy former boss or colleague, a local business person who's shown an interest in promoting enterprises in the community. It might be an ambitious and vocal figurehead in your sector, or simply a member of your own family.

In general, the best angel investors come with capital, contacts and invaluable knowledge. But they will usually demand a percentage of ownership in your company, in exchange for their skills and credentials. This could be anything from ten percent to a partially controlling share in excess of 25 percent.

Venture capital is slightly different. For a start, VCs usually deal with large scale investment in high growth fields – such as tech. Unlike individual angels, to win VC funding you'll need to win over a whole firm – including investors, board members and startup growth specialists. A VC is interested in long-term growth, so they don't tend to offer "seed" or early-stage funding, but they will be looking for a stake in your organisation. That money isn't free, afterall.

What about iwoca?

For younger businesses looking for finance, an iwoca flexi-loan could be just right. Borrow up to £500,000 over 12 or 24 months, or repay early for free to save on interest. Decisions are made in just one working day and you could have the money in your account within 24 hours.

More on business funding options

Words by
Helen Nugent
Article updated on:
February 15, 2024

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