Who offers business finance?

Any of the following could offer business finance, depending on the type you choose and how much you need to borrow:

  • High street banks

  • Individual investors

  • Hedge fund managers

  • Members of the public

  • The government

Types of business finance

How much money you can get for your business, how much it will cost and the terms of the investment all depends on the type of finance you choose.

Here are the pros and cons of each option:

1. Angel investors

  • Do not have to pay the money back

  • No cost to your business

  • You lose equity in your business

  • May restrict how money is used

An angel investor is someone who gives you money to invest in your business in exchange for some equity in your company. They invest in both new and established businesses.

Angel investors normally stay out of the day to day running of your business, but they may set some restrictions on what their money can be used for.

For example, an angel investor may give money to purchase new machinery but not for the day to day running costs of the business.

How much money you could get for your business will depend on the angel investor, how much equity you are willing to sacrifice and the value of your business.

2. Business credit cards

  • Can be issued to multiple staff

  • Keep ownership of your business

  • Charge interest and annual fees

  • Expensive if you need cash

With a business credit card you can make purchases for your business the same way you would with a personal credit card.

They can be ideal if you need to borrow money to pay for day to day transactions and expenses, and they can be issued to several members of staff.

Some business cards offer 0% on purchases for several months while others offer incentives like air miles, cashback and rewards.

However, business credit cards tend to only be available to businesses that are already trading, so they cannot be used to fund the set up costs of a business.

3. Business loans

  • Can borrow a cash lump sum

  • Keep ownership of your business

  • Your business has to pay interest

  • May need a personal guarantee

With a business loan your company could borrow between 1,000 and 3 million depending on your circumstances. You can pay them back over 1 month to 15 years.

There are several types of business loans, some work in the same way as a personal loan, while others allow you to sell your unpaid invoices or a fraction of your debit card sales to raise funds.

They can also be used by both established businesses looking to expand and start ups who need funds to get their business up and running.

Here is a closer look at all the different types of business loan and how to pick the right one for your business.

4. Business overdrafts

  • Flexible borrowing & repayments

  • Keep ownership of your business

  • You pay interest and fees

  • Tends to be for smaller sums

A business overdraft works in the same way as a personal overdraft and is a good option for businesses who need flexible borrowing.

You are normally charged interest on the amount you have borrowed, often calculated daily, and have to pay an arrangement fee as well.

Some business accounts offer interest free overdrafts for a certain amount of time after you open them, but this tends not to last longer than 12 months.

The size of your overdraft depends on your business finances and your business' credit record and they are normally only offered to well established businesses.

5. Crowdfunding

  • Your business keeps the money

  • Keep ownership of your business

  • Have to offer rewards to investors

  • No guarantee project is funded

Crowdfunding works by pitching your business idea online and offering perks or rewards to investors if your investment target is met. It is also called donation or reward crowdfunding.

It can be a great way to raise money for a new business venture but you will need a sellable idea and attractive rewards to secure the money you need.

Crowdfunding can also be used by both new companies wanting to raise money to support a new business idea, and existing businesses.

Other types of crowdfunding include:

  • Debt crowdfunding where you borrow money from investors and pay it back with interest

  • Equity crowdfunding where you sell equity in your business in exchange for investment

You can find out more about how crowdfunding works by visiting the UK Crowdfunding Association (UKCFA) website.

6. Government grants

  • May get to keep the money

  • Keep ownership of your business

  • Only for small businesses

  • Could offer too little

Government grants are designed to support new businesses, those in certain sectors of the economy, or specific areas of the UK. They are good if you need an injection of cash to get started.

The big advantage of grants is that you do not have to pay the money back and you keep full ownership of your business.

Each grant has different criteria for the businesses they are willing to fund though, so check these carefully before you apply.