Top 6 Funding Options for Startups and SMEs

The UK remains to be one of the best countries in the world to start a business, thanks to multiple sources of funding, whether it’s in the public or private sector.

In fact, almost 80% of startups have successfully raised capital in 2018. Moreover, 28% of startups believe that the country’s current fundraising environment is not challenging—an increase from 19% recorded in 2017.

Why Businesses Need Funding

In business, the old adage rings true: to make money, you need to have money. While bootstrapping is an option, plenty of startups are built to grow fast. In the process, however, you’ll inevitably need constant cash flow in order to be sustainable.

Entrepreneurs and startups may need extra funding for the following reasons:

  • Working capital — To sustain a business’ financial health, be it to expand or to fill a short-term gap
  • Asset purchase — To purchase assets (e.g. vehicles, machinery, software) that the business can use to grow and increase sales
  • Starting a business — To get a business up and running, especially when owners do not have enough personal funding
  • Growth funding — To take the business to another level, be it to add more products/services, hire more employees, or expand to another local or international area, etc.
  • Debt restructuring — To refinance current debt and ease a company’s financial planning

Funding Options for Startups and SMEs

Whether you need to start a business or to expand your current one, here are 6 funding options that you can explore:

1. Business Grants

Grants, as opposed to loans, do need to be repaid. These can come from various government departments, trusts, or private corporations, and are given to businesses that meet certain criteria. You can also get a grant by winning competitions.


  • No repayment — Grants are essentially given to you. Regardless of where it comes from, they don’t require any equity nor would add any interest rates, lessening the burden of additional expenses.
  • No risk — Given that there is no repayment required, grants carry no risk. This is as opposed to loans, wherein non-payment can put your credit rating and assets at risk.
  • Added credibility — Future investors and/or partners will see your business worthy to be invested in since you’ve already secured a business grant in the past.


  • Long process — Given its advantages, plenty of business owners would expectedly vie for the same grants. Therefore, companies and government departments need to filter every applicant and pick which ones fit their criteria the best, resulting in a longer process.
  • They might not pick you — Due to the number of applicants, there is always the chance of them not picking you.
  • You might need to pivot — You may need to change your business model, focus on a different market, or overhaul your products altogether to match certain criteria.

Where to get business grants in the UK:

  • Prince Trust Grants — For young entrepreneurs (aged 18 to 30), this grant offers individuals £1,500 and business groups £3,000; there is also a test marketing grant of up to £250.
  • Apprenticeship Grant — For employers who have apprentices 16 to 18 years old, this government grant can get you 100% funding; for those with apprentices 16 to 24 years old, you can get up to £1,500 (max of 10 employees).
  • Innovation Vouchers — You can get up to £5,000 to have an external expert on board your business.
  • Launchpads — For tech-focused, early-stage SMEs, Launchpads are competitions that can get you up to £100,000, provided that your private investment or self-funds can match it.
  • Small Business Research Initiative (SBRI) — The SBRI is open to any business owner who wants to research and develop a product for the general public. You can win up £50,000 to £100,000 initial funds, and up to £1,000,000 down the line.

For a more exhaustive list of grants check out this guide from the Entrepreneur Handbook.

2. Bank and Government Loans

Also called debt financing, loans can come from either the bank or the government (i.e. local authorities, organisations).


  • Clearly-defined terms — Terms and conditions will be laid out prior to the start of the loan, with interest rates often fixed.
  • Access to mentors — You’ll have access to a valuable network, which can include mentors and key figures in the industry.
  • Research is all on you — You’ll provide your USP, present your business plan, and do your own due diligence when applying for a loan (as opposed to grants where you might need to pivot your business).
  • Better opportunities — You can borrow as much as your ability to pay will allow; you can also get loans from multiple sources outside the government like private lenders or certain individuals.


  • Needs market validation — You’ll need to present a proof of concept to establish your credibility, which includes sales and earnings.
  • Limited spending — You can only spend within a set number of expenditures that are detailed and agreed upon at the beginning.
  • Added expenses — You need to be able to repay these loans plus interest, which adds to your expenses.

Where to get loans in the UK:

  • UK Government Startup Loans — For business owners in England, Northern Ireland, Scotland, or Wales, who need funding to start or grow their business.
  • Startup Loans — Available for those who are 30 years old and below, with a 6% interest rate.
  • Silicon Valley Bank — SVB provide loans, especially to VC-funded tech startups.
  • MarketInvoice — For B2Bs dealing with bigger companies, this is an invoice financing loan, which lets you get your unpaid invoices asap instead of in 90 days.
  • ThinCats — Although more risk-averse, ThinCats provides loans to established and profitable businesses.
  • Funding Circle — A platform that allows peer-to-peer lending.
  • Advance Funding — Lets you get your R&D Tax credits up to 9 months prior to filing.
  • British Business Bank — Provides loans for small business, thanks to its 80 finance partners.
  • Creative England — Interest-free loans for digital creative businesses.

3. External Investors

You can also get external investors through venture capital (VCs) or angel investors (seed funding).

Angel investors (affluent individuals) are best for startups/pre-revenue businesses, while venture capital (mix of entrepreneurs and bankers/finance with pooled resources) is best for early-stage, pre-profitability businesses.

In 2018 venture capital continues to be the top source of business funding in the UK, followed by angel investors.


  • Passionate about your business — Angel investors are often entrepreneurs themselves, and they invest in businesses they can support and guide through their mentorship and/or their networks.
  • Larger funding — VCs would not only provide you with a network, mentorship, and resources; they can also provide larger amounts of money than angel investors.


  • Give up control — Angel investors can get involved too, which could result in you losing control of your business. Alternatively, if they lose interest, they might disengage and stop supporting you. VCs are the same, as they would want to maximise their returns. They are known to intervene, which means big decisions are not 100% yours anymore.
  • Give up equity — Both angel investors and VCs need equity in your business in exchange for their investments, which diminishes your stake in your own company.

Where to look for investors:

When looking for and pitching to investors, make sure that you know your business inside out. Find a way to be introduced, as investors are more likely to trust recommendations from those in their networks.

Have a long-term plan, and pick an investor with a vision that is aligned with where you want your business to go, as well as someone who can also support you beyond monetary means.

4. Crowdfunding

Crowdfunding can give you the short-term funds needed to develop your product or get your business up and running. These platforms are ideal for B2Cs, as well as business who can’t apply for loans.


  • You keep 100% of your company’s equity
  • You can test if there is a demand for your product with minimal risk
  • Get immediate feedback from your target market, while increasing brand awareness


  • This involves an intense process that would require you to engage with your audience, create a story, produce videos, and market your brand

Crowdfunding Platforms:

5. Tax Breaks

There are a number of tax benefits to startups and SMEs in the UK, including:

  • SEIS — A tax break for investors, which incentivises them to invest in qualified small businesses
  • R&D Tax Credits — Those who qualify can get up to 230% tax relief on R&D expenditure
  • Patent Box — Tax breaks for profitable businesses with EU patent
  • Small Business Rate Relief — Tax relief for business properties with less than £6,000 value, and properties that fall within £6,001 to £12,000 value
  • Employment Allowance — Employers can claim up to £3,000/year off their National Insurance bill
  • Marginal Relief — Businesses with profit between £300,000 and £1.5 million can reduce their tax bills via Marginal Relief
  • Creative Industry Tax Relief — Eight corporate tax relief for businesses in the creative sector, provided that you pass the British Film Institute’s cultural test

6. Family or friends

You can also go to your family and/or friends for extra funding.


  • Mutual trust, given your close relationship with them
  • The process is quicker since you all know each other


  • They might not know anything about business, so they can’t give you the support (e.g. mentorship, network) you need
  • You risk damaging the relationship, especially if the business is not successful

Weigh up Your Options

Although there is uncertainty in the UK’s economic future, startups and SMEs continue to thrive in the country, even leading Forbes’ 13th annual list of Best Countries for Businesses.

Raising funds is often one of the first hurdles that every entrepreneur faces. However, there are plenty of options available for you—from loans to investors to tax relief—which can help grow your business from a fledgeling startup to a profitable venture.