How to get financing for a startup company

There are many different ways to fund a startup, from seeking angel investment to getting a short-term business loan. Funding your startup can provide you with the cash flow required to get a good head start and enable future growth. But first, it’s important to understand the options available to you.

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How to get financing for a startup company

Can you finance a startup?

It's not only existing businesses that can get finance – start-ups are being considered as more financeable too, with unique new platforms becoming more prominent. Alongside this, the government are now trying to help, encouraging entrepreneurs to set up businesses and working hard to ensure this gains momentum.

Why a new business needs a form of startup finance

When raising funds to start up a business, it's important to keep in mind that you don’t get anything for free. Lenders often want something in return for their money – this is usually some form of security or perhaps a personal guarantee. It's important to keep your expectations realistic and your priorities in order.

If you believe you fit the criteria for finance, there are plenty of innovative products and lenders out there which will help – and not just the banks. With a growing number of flexible options out there, it's never been easier to find a type of finance that fits.

How to get funding for my business idea

When it comes to getting your business idea off the ground, you might decide to 'bootstrap' your company. This involves using your own cash, credit cards and savings to finance the business. One of the benefits of going down the bootstrapping route is that you won't have any large loans and monthly repayments to keep up with.

Some startup owners even decide to bootstrap until their business starts to make a profit.

However, bootstrapping isn't an option for many people. Perhaps you don't have lots of savings. Maybe you want to grow your business quickly, or rely on maintaining stock and the use of expensive machinery. Fortunately, there are lots of other funding types available.

Types of funding for startups

Here are some of the most popular finance choices available to start-up companies today.

1. A startup loan for new business

Business term loans are based over a pre-agreed period of time and set to various interest rates. For a secured loan, you have to have some security in place to raise the finance – such as equity in assets or money set aside. Unsecured loans are also available though, and while some lenders may ask for a personal guarantee, others won't require any security. If the finance is urgent it may be worth looking into emergency business finance.

What is a startup business loan?

A startup business loan is a type of business funding for new businesses. As a startup business owner, you might use your borrowed capital to invest in equipment, machinery or stock, or to hire new staff or open your first business premises.

Aside from regular term loans, where you borrow a "principal" amount and pay the money back (plus any interest) over a set period of time (usually anywhere from one to 15 years), there are lots of other finance types available. You may want to explore the following:

Invoice finance

Late payments can wreak havoc with a business' cash flow, and invoice finance is designed to take the pressure off. It works by the lender advancing you most of the value of your invoices straight away, meaning you get paid faster for the work you do.

Merchant cash advance

If you run a retail business or another type of business that takes customer card payments, you might be eligible for a merchant cash advance. You borrow a sum of money from the lender then pay it back through a percentage of your customer card payments. 

Business credit card

Business credit cards can be a useful tool when it comes to accessing funds on an ad hoc basis. They’re convenient for managing cash flow, keeping track of expenses and spreading costs. The lender will look at your credit history when assessing your eligibility.

2. Crowdfunding

Crowdfunding is a great way for start-ups to get funding to boost their operations. The concept is fairly simple as it uses an online platform to take a large number of small investments to reach a target value. If this is met, the company receives the money and the investors will usually take a small share in the company.

The reason this is such a popular and effective method of fundraising is that there is a smaller risk for investors (because they usually invest small amounts) and it rewards unique and interesting business ideas and propositions.

3. Business grants

The UK Government is very keen to help start-ups and small businesses. Although they can be very difficult to get due to eligibility and competition, there are various grants handed out by the government which have helped numerous startups in the past.

4. Pension-led funding

Pension-led funding lets you borrow from your personal pension in order to invest into your business. This puts you firmly in control of your finances, and is a great way of growing your business whilst potentially increasing your own pension in the process.

5. Overdraft alternatives

Most commonly in the form of a flexible overdraft, this is an alternative to what your bank would normally offer you. With this type of overdraft, you have more control over how you access additional funds and can turn the facility on and off – but is usually offered to businesses who can prove they can make a turnover as the terms are based on your sales ledger.

6. Cashflow loans

There are plenty of cash flow boosting alternatives available which can help grow your business. Many of these facilities have been created to suit varying business types so it is well worth taking a look at all the options to see which would suit your business the most. These loans are intended to grow a small business and can be very effective if matched correctly.

7. Personal savings 

Many new business owners decide to invest their personal savings into their startup, which is when obtaining funding can be most challenging. Family and friends might also decide or be in the position to help out too.

8. Venture capital

If they decide to invest in your business, a venture capital firm will provide you with finance in exchange for equity in your company (meaning they’ll have a shareholding in your business). Venture capital investors may also be in the position to offer advice and expertise. 

It can be challenging to acquire funding this way and many VCs are primarily interested in fast-growth startups in a stable position who carry less risk. Deliveroo, Skype, Monzo and Revolut are all examples of startups that have received venture capital funding.

9. Angel investment 

Angel investors are often high net-worth people who decide to use some of their wealth to invest in startups. If you’re interested in pursuing this route, you might want to check out The UK Business Angel Association (UKBAA) for more information.

Corporate investment is similar, but instead of individuals investing in businesses it refers to other businesses investing in businesses. More often than not, businesses can invest more than individuals because companies tend to have a higher net worth.

10. Government-backed Start Up Loan scheme

The UK government runs a government-backed Start Up Loan scheme that provides eligible startups with access to £500 to £25,000 of funding to launch or grow. It’s an unsecured loan and comes with free support, guidance and up to 12 months of mentoring. 

Interest rates are fixed at 6% per year and businesses can repay the loan over a period of up to five years (with no application or early repayment fee). Lot's of business finance types require you to have been trading for at least two years to be eligible for finance.

Start Up loans, on the other hand, are available to brand new businesses and those that have been operating for less than two years.

How easy is it to get a business startup loan?

The ease at which you can get a startup loan depends on a variety of factors - not least of all the type of loan you’re applying for and your financial circumstances. For example, for standard business loans, you can expect the following to apply:

- The loan amount is less than 25% of your annual turnover

- Your business is profitable

- You have more than 24 months’ trading history

- You have no outstanding CCJs or late payments

- Your business is based in the UK

Of course, this rules out many businesses who have only just started trading or are yet to trade. In this case, you might decide to apply for the government’s Start Up Loan, which is aimed at UK-based businesses that have been fully trading for less than 24 months. 

How to finance a franchise startup

In many ways, buying a franchise is safer than starting your own business from scratch. Because the business idea is already successful, a business model has been established and your franchisor is on hand to provide you with support, lenders are often happier to provide you with the funding you need to get your franchise off the ground.  

Even if you’re able to contribute some of your personal money towards the franchise, you’re likely to need additional finance to cover the franchise fee, stock, premises and operating costs. There are lots of lenders out there who specialise in franchises, and there are a range of business loan solutions available - including asset finance and leasing

How to get a bank loan for a startup business in 3 steps

Startup businesses can sometimes find it difficult to source lending from traditional banks because they are seen as ‘higher risk’ and the banks have stricter lending criteria. Fortunately, there are a variety of alternative finance lenders out there today that offer unsecured funding options that can be accessed very quickly. 

You can use the Funding Options platform to find a loan for your startup. 

Step #1: To get started, tell us how much finance you need, what it’s for and how quickly you need the funds. 

Step #2: Our smart technology will compare up to 120+ lenders and match you with the right finance options for your needs.

Step #3: A Finance Specialist will help you through the process from application to receiving your funds.

With such an array of options, as a business owner, you should never underestimate the value of a non-biased intermediary such as Funding Options, as we are positioned in a way to ensure your business can get exactly the support it needs. Whether this is by providing fast, honest answers, using in-depth knowledge of the market, or offering a helping hand – we always work hard to help you on your journey.

Simon Cureton

Chief Executive Officer

Simon has been Chief Executive Officer at Funding Options since 2019, spearheading its transformation into a leading fintech with the launch of its Funding Cloud platform. Simon has over 27 years of experience in financial services, having held senior posts at some of the biggest players in the industry all over the world.

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