Launching a start-up often requires significant capital to get up and running and maintain momentum. Luckily, there are more finance options now than ever for UK start-ups. From business loans and grants to crowdfunding and angel investors, you can explore a range of solutions to help fund your new venture 

In this article, we explore the different forms of start-up business funding and how to give yourself the best chance of approval..

How can I get funding for a new start-up?

You can get financing specifically designed for new businesses and start-ups, including start-up loans from banks and private lenders or government-backed loans and schemes aimed at new ventures. Beyond business loans, you can explore equity investment if you’re concerned about committing to lengthy loan repayment schedules in your initial growth stage.

Between 2023-24, nearly a million (890,500) new businesses were registered in the UK, an increase of 11.2% from the previous 12 months. But as many new businesses fail within the first few years, due to rising bills, taxes and business rates, plus other economic factors, start-up business funding is crucial. 

Luckily, start-up financing is thriving in Britain. In fact, the UK recently overtook China to move into second place globally for funds raised for start-ups in 2024, in part thanks to the rapid growth of fintechs and emerging digital lenders like Monzo and iwoca.

What types of start-up business funding are there?

New businesses have various finance routes to explore when looking for start-up business funding solutions. These include bank loans and lines of credit for start-ups, start-up loans from the British Business Bank, government grants, equity investment, such as venture capital, angel investors and crowdfunding platforms, plus other specific funding options like invoice financing and revenue-based funding.

Below, we discuss each of the main options available to start-ups in more detail:

Start-up business loans

A start-up business loan is typically a small loan to support new businesses, involving making monthly repayments, often over a period of 1 to 5 years. It can be secured or unsecured, but the unsecured loan format is more common, as most new businesses don’t have the required assets to use as collateral. However, you may need to provide a personal guarantee. 

While some founders may struggle to find firms willing to lend capital to help them build and grow, this is likely due to a lack of trading experience and track record, poor credit history, or a risky business model.

While some high street banks offer start-up business loans, you apply for a government-backed start-up loan, run by the British Business Bank, which provides sums ranging from £500 to £25,000. Successful applicants also benefit from support and guidance helplines, and even 12 months of free mentoring.

Also, you can explore digital lenders, like iwoca, who can often offer flexible loans to start-ups, even if you don’t have a strong credit history or financial track record. We look beyond the credit score, assessing a range of other factors, including revenue potential and robust business plans.

Lines of credit

A line of credit is a credit facility from which you draw upon capital as and when you need it. It’s an unsecured form of lending, which means that the money you borrow is not secured against an asset. You may have to sign a personal guarantee, meaning you’re 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, our Flexi–Loans act like a line of credit, as you draw down certain amounts, when required, only paying interest on the funds you use. Plus, you have the option to repay early or top up your credit amount (subject to approval). Learn more about our flexible lending facility. [Anchor link]

Grants

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

However, the bigger the grant, the more complicated the application process and eligibility criteria. At the very least, you will need the following:

• A solid business plan
• Clear purpose for use of grant funds
• A separate source of finance to support any funds offered
• Time to assess the criteria and apply to the most relevant grants

Government-backed schemes usually come in three forms:

1. Direct grants, which allocate money to cover a start-up's early costs, such as buying equipment, paying staff or investing in stock. Often, you’ll need to match half the grant's value with your own funds.
2. Equity finance, which is not technically a grant, but the government allows a reduction of income tax on any investment in the new businesses of up to £100,000.
3. Soft loans – essentially business loans with below-market rates of interest that come with flexible terms.
   

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. Another option worth exploring is using crowdfunding. There are numerous kinds of crowdfunding, but essentially, if you can pitch for funding by posting details of your business on a crowdfunding website. Members of that website's community can communally fund the project by pledging their cash, usually in exchange for some form of reward, take or benefit.

Here are the main types of crowdfunding:

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

In all cases, it's key to have a detailed description of your business that will appeal to a broad audience. Again, a solid 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?

When it comes to using crowdsourcing for start-up business funding, remember to be specific about your goals, aim to inspire your funders and remain 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 someone or an organisation with cash to invest in your business in return for a slice of the pie that 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, or an ambitious and vocal figurehead in your sector. A member of your own family is also worth considering.

Angel investors will usually demand a percentage of ownership in your company in exchange for their skills and credentials. Venture capital is slightly different, as 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 start-up growth specialists. As they’re usually interested in long-term growth, they don't tend to offer "seed" or early-stage funding, but will be looking for a stake in your organisation. That money isn't free, after all.

Invoice finance

Invoice financing allows businesses to unlock cash tied up in unpaid invoices. A financier advances a significant portion of the invoice value, usually around 80-90%, shortly after the invoice is issued. Once the customer pays the invoice, the remaining balance is forwarded to the business, minus service and discount fees. 

Benefits of invoice financing include:

• Improved cash flow – access to funds tied up in pending or late client payments helps maintain smooth operations.
• Quick access to funds – you receive money within a short period, often within 24-48 hours.
• No additional debt – unlike loans, invoice financing does not add an ongoing debt burden.
• Flexible financing – the amount of financing grows with your sales, providing a scalable solution.

Invoice financing is ideal for start-ups in seasonal industries, helping you manage cash flow during off-peak seasons, and businesses with long payment schedules, like construction and manufacturing. 

Merchant cash advances

A merchant cash advance (MCA) is a revenue-based financing option where a business receives a lump sum payment in exchange for a percentage of future credit and debit card sales. Repayments are made daily or weekly, automatically deducted from the business's card transactions until the advance is repaid in full.

Advantages of using merchant cash advances for start-up business funding:

• Fast access to capital – businesses can receive funds quickly, often within a few days.
• Flexible repayment – your repayments are tied to sales volume, so businesses pay more when sales are high and less when sales are low.
• No fixed monthly payments – your payments align with sales, keeping cash flow steady.

Specific requirements:

• Card sales volume – businesses need a steady volume of credit/debit card sales to qualify.
• Short-term solution – typically used for short-term financing needs due to higher costs compared to standard loans.
• Cost considerations – MCAs often have higher fees and factor rates, which can be more expensive than traditional financing.
  

Pension-led funding

This form of funding allows business owners to use their personal pension funds to invest in their business. This is done by transferring the pension into a Self-Invested Personal Pension (SIPP) or a Small Self-Administered Scheme (SSAS), which then invests in the business, typically through a loan or by purchasing company shares.

Benefits of pension-led funding:

• Control over funds – entrepreneurs maintain control over their investment and can benefit from the business's success.
• Flexible finance option – provides an alternative funding source without relying on traditional lenders.
• Growth potential – you can potentially increase the value of your pension through business growth.

Risks and considerations:

• Personal risk – your pension is at risk if the business fails.
• Regulatory compliance – you must comply with pension regulations and rules governing SIPPs and SSASs.
• Professional advice – it’s essential to seek professional financial and legal advice before proceeding.
  

How can you apply for start-up business funding?

You can either apply for start-up loans directly from banks and lender websites or explore funding circles, equity investment networks, or check out different crowdfunding platforms if you’re not looking for debt finance. Some applications and processes take longer than others, depending on the complexity of your funding needs and the extent of the eligibility criteria and documentation requirements. 

So, before applying, ensure you’ve done adequate research and have the necessary details and data prepared.

How to maximise your chances of approval

To give yourself the best chance of getting approved and receiving the funding you need, consider the following steps ahead of applying for start-up business funding:

• Get a clear view of your existing finances and scope out your funding needs.
• Explore every potential avenue of financing to judge suitability.
• Do extensive market research and forecasting to support your assumptions.
• Create a strong business plan and case for funding.
• Outline a clear purpose for the funds and your growth goals.
• Consider ways to build your credit history and rating before seeking funding.
• Settle any existing debts and liabilities, where necessary.
• Ensure your start-up meets the eligibility criteria of each finance option you’re exploring before applying.

Get a flexible business loan for your start-up

If you favour a loan over equity finance for your start-up business funding, be aware that you don’t necessarily need to apply for a specific start-up loan. Alternative finance providers, like iwoca, offer flexible loans tailored to your funding needs.

Our Flexi-Loans are designed for new and small businesses to help cover various operational expenses, ease cash flow concerns and generate business growth. We offer greater access to finance to start-ups and businesses without stellar credit scores or long financial track records, as we consider revenue potential and a host of other factors.

Benefits of iwoca’s Flexi-Loans

Here are just some of the benefits you can expect from iwoca’s flexible loans for new and small businesses: 

• Apply in minutes – you can apply easily online with minimal documentation and be approved within 24 hours.
• Choose from flexible loan options – borrow capital for a matter of days, weeks or up to 60 months, and only pay interest on funds you draw down.
• Repay and manage easily – there are no early repayment fees, hidden costs or long-term commitments, and repayments are aligned with your cash flow.

Apply now for a business loan from iwoca and use our handy business loan calculator to see what you could borrow, for how long and the likely monthly repayments.