6 easy ways to get finance for your business

If you want your business to grow and reach new heights you may need to borrow money. Here we take a closer look at some of your business finance options.

If you want to start or grow your business, you probably won’t have the cash readily available to invest in it. Business finance lets you raise money with the aim of boosting your business and adding value whether this is to cover rent for your business’ property, employee salaries or company vehicles. 

It broadly falls into two categories. With debt finance you simply borrow money and pay it back with interest. This type of finance includes business loans, overdrafts and credit cards. As long as you can meet the repayments it’s a straightforward way to fund your business.

The other category is equity finance, which involves selling a share of your business to an investor. This means that the more successful the business is the more they will profit. Your business may also be able to benefit from their knowledge, experience and contacts. 

Equity finance is more complex to arrange and you will no longer own 100% of your business.

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 or other lenders

• Individual investors

• Venture capitalists

• 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 depend on the type of finance you choose and the financial health and history of you or your business.

Here are the pros and cons of some of the simplest options to arrange:

1. Business lending

Pros

• You can borrow a cash lump sum

• You keep ownership of your business

Cons

• Your business has to pay interest

• You may need a personal guarantee

Your company could borrow between £500 and £15 million with a business loan, depending on your circumstances. You can take out an unsecured loan for smaller amounts or a secured loan for larger ones, which is secured against an asset such as property. Secured loans for businesses tend to have lower interest rates than unsecured ones.

You can pay them back over a period of between one month and 20 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 borrow against them to raise funds. 

You may also be able to get a loan through the government-backed Recovery Loan Scheme introduced in April 2021 to help businesses affected by the coronavirus pandemic.

Business loans can be used by both established businesses looking to expand and startups who need funds to get their business up and running.

You could also look for a revolving credit facility, or credit line, which works by letting you withdraw from a sum of money when you need it and only pay interest on what you take. You can repay it and then use it again.

Compare business loans

2. Business credit cards

Pros

• They can be issued to multiple members of staff

• You keep ownership of your business

Cons

• You have to pay interest and annual fees

• A relatively expensive way to borrow

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

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.

You may also like our guide on understanding business loans vs line of credit vs credit cards.

How do business credit cards work?

3. Business overdrafts

Pros

• Flexible borrowing and repayments

• You keep ownership of your business

Cons

• You pay interest and fees

• They tend to be for smaller amounts than loans

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, which is often calculated daily, on the amount you have borrowed and have to pay an arrangement fee as well.

Whether you’re approved for an overdraft and the size of the overdraft you’re offered depend on your business’s finances and credit record as well as your own credit history.

How do business current accounts work?

4. Crowdfunding

Pros

• Your business can keep the money

• You can keep ownership of your business

Cons

• You have to offer incentives

• There’s no guarantee that your project will be funded

Crowdfunding works by pitching your business idea online and offering perks or rewards to a ‘crowd’ of investors if your investment target is met. This 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, such as exclusive access to your product or a discount, to secure the money you need.

Crowdfunding can 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.

Find a UKCFA approved crowdfunding website

5. Government grants

Pros

• You can keep the money

• You keep ownership of your business

Cons

• Some are only for small businesses

• They could offer too little

Government grants are designed to support new businesses, or 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 or grow.

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 that are eligible for it, so check these carefully before you apply. Some may require you to invest the same amount as the grant in your business yourself.

Search for business grants in your area on Gov.UK

6. Angel investors

Pros

• You don't have to repay the money

• No cost to your business

Cons

• You lose equity in your business

• You may need to give up some control over your business

An angel investor is a wealthy individual who gives you money to invest in your business in exchange for some equity in your company. Sometimes two or more angel investors will work together. They invest in both new businesses and established ones, usually in their early stages.

Angel investors normally act as mentors and offer support with their time, knowledge and contacts but can have a hands-on or hands-off approach to the day-to-day running of your 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.

Search for angel investors using the UK Business Angels Association's member directory