Start-Up Business Financing Guide

start up business financing


Raising the money necessary to get your business off the ground is one of the biggest challenges facing start up owners.

Whether you need to purchase stock and equipment, rent premises or pay professional fees, there are many essentials you will need to find the funding for.

While there are a wide range of start-up business financing options available, the process of applying for and securing funding is rarely straightforward or easy. You will need to research, plan and prepare to ensure you are choosing the right option for your business.

Start-up finance planning

When it comes to business finance, careful planning is essential.

Business owners have a lot to consider beyond the immediate need for cash, such as their long-term goals, predicted profits and likely tax obligations.

It’s wise to draw up a detailed business plan, if you don’t already have one, before considering your funding options. Presenting a business plan will, for example, be necessary if you should decide to apply for a loan from your bank, or another lender. Plus, it will allow you to make fully informed choices about which financing solution best suits your business goals.

Using your business plan, draw up a budget which includes:

  • Forecasts of income, expenditure, and final cash position every month
  • Initial one-off costs (capital costs), such as equipment or furniture

Be realistic with these figures; it is better to underestimate rather than overestimate profits. Using this information, you can then ascertain how much you can comfortably afford in repayments and how much you will actually need to get the business up and running.

Common start-up business financing options

Here are some of the most common short-term and long-term financing options available to new businesses:


Overdrafts are often a suitable start up finance option for businesses that only need to borrow a small amount of money to get up and running. Overdrafts are applied to a bank account and are usually easier to qualify for than standard loans, as they are paid back sooner. Though typically more expensive than a loan, overdrafts do not come with the downside of early repayment penalties.


Loans are one of the most common start-up business financing options. Taking out a loan offers a greater degree of security than an overdraft, as it cannot be recalled by the bank. Keep in mind that larger loans are usually secured against a personal item of value, such as your home or car. These types of loans are a high-risk lending option, as the bank will take steps to seize your property if you fail to make repayments.

Borrowing from family or friends

This may be an option if you have friends or family members with the financial means to lend you money. However, this can put a strain on personal relationships. If you choose to go down this start-up business financing route, make sure the person lending you money understands the risk they are entertaining.

Investing personal savings

Using your personal savings as a means of start-up finance can be a smart choice, as the interest you will lose out on is typically less than the interest you would pay on a loan. However, any interest you pay on borrowed money will help to reduce the business’s taxable profits, cutting back on the amount of annual tax you pay.

Selling shares

Limited company owners may choose to sell shares in their business to raise funds. Though, this start-up business financing option does come with the considerable downside; namely, that you will lose a degree of control over the company to your investors. If you are considering issuing shares as a finance option for your business, the British Private Equity and Venture Capital Association will be able to put you in touch with suitable potential investors.

Government grants

Start-up business financing grants and loans may be available from the government or local authorities, or example, those directed specifically at small businesses.

Where local authority start-up grants are available, they are usually reserved for new businesses who offer a valuable service, create jobs, or will in some other way be valuable to the community.

This type of financial support can be often narrow in eligibility, but where available, it typically comes with favourable terms.

Plus, any portion of the money you receive that is issued as a grant will not need to be paid back at all.

Other start-up finance options

Getting your new business off the ground does not necessarily mean you will need to borrow a cash lump sum, part with your personal savings or issue shares. In some instances, the following start-up business financing options may be more appropriate:

Hire purchase: Though ultimately expensive, hire purchase agreements can give you access to essential equipment without having to pay the full cost up front.
Leasing: This would allow you to use tools and equipment vital for your business, without owning them.
Factoring: Most factoring companies allow you to borrow up to 85 per cent of any amount owed to you by customers or clients.

You may also consider organic growth if it is a viable option for your business. Retaining profits allows you to avoid diluting your control over the business or committing to repayments on a loan. Of course, organic growth is a slower ‘means to an end’, as compared to the other start-up finance options previously discussed in this guide.

Business start-up loans

Business start-up loans are a relatively new type of financial product, aimed at individuals who are seeking to start their own business or have been trading for less than two years. While traditional loans can be difficult for new business owners to obtain without collateral, start-up loans are designed to help budding businesses gain access to the funds they need to succeed. Start-up loans can be obtained from banks, the government, online lenders, and investors; they typically range from £500 to £500,000.

A loan from an online lender may be a good start-up business financing option for new businesses that only a require a small amount of money to get started, or those who fear they may be impeded with poor credit. These start-up loans can be applied for entirely online and if approved, will usually be paid out within 24 hours. Online lenders generally offer loan products to suit people of all credit backgrounds; however, keep in mind that taking out a ‘bad credit’ loan will mean less favourable rates. In contrast, traditional lenders such as banks normally offer better rates and repayment terms. Though, they are harder to qualify for and take longer to process.

Government start-up loans

Any person in the process of setting up their own business can apply for a start-up loan backed by the government, of between £500 and £25,000. The repayment period for government-backed start-up loans range from one to five years, depending on the size of the loan. Though there is no such thing as risk-free borrowing, government loans are a relatively safe start-up business financing solution, as they come with a fixed interest rate of 6% a year.

Choosing this start-up finance option is a smart move if you are new to running your own business and would benefit from additional support. Besides providing funding, the government start-up loans scheme offers entrepreneurs assistance in putting together a business plan and generating financial forecasts.

Start-up business grants

Besides the government and local authorities, there are several other institutions that offer limited start-up grants to new businesses. For example:

  • The Prince’s Trust offers support and has limited funding available for individuals between the ages of 18 and 30, if they are unemployed or working under 16 hours a week.
  • The Royal British Legion assists ex-service men and women who would like to work for themselves.

Though the grants provided by these entities are small and often limited, they do offer a great deal of valuable guidance and practical advice for anybody wishing to set up a business. This will include information on alternate start-up business financing options and support in completing applications.

Legal disclaimer

The matters contained in this article are intended to be for general information purposes only. This article does not constitute tax, financial or legal advice, nor is it a complete or authoritative statement of the rules and should not be treated as such.

Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.

Before acting on any of the information contained herein, expert tax, financial, legal or other advice should be sought.


Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.

Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.

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