How to raise money to start and grow your own business

The first challenge new owners face is how to find the money to start or grow their businesses. Although there are more optoins than ever – they’re not available to all types of businesses.

In this new ByteStart guide, we look at the main routes to finance – for both the self-employed and small companies.

The cash flow reality

This guide is for all small businesses: sole traders, partnerships, and limited companies.

Some forms of finance are open to everyone; others are easier if you trade through a company or have a trading history.

We will flag where being a sole trader can make things more complicated, so you don’t waste time researching unrealistic sources of funding.

Most businesses will, at some point, need external finance – whether for start-up costs, growth, or to bridge a challenging period.

The type and timing of funding you need will depend on how quickly your idea takes off, how predictable your income is, and how much pressure late payments or seasonal demand put on your cash flow.

Even if you only use a business plan as a rough guide, it’s worth sketching out a few “what if” scenarios. Most people overestimate revenue and underestimate costs, so build in some wriggle room from the start.

Funding options at a glance

Personal sources

A large number of start-ups are self-funded via savings, loans from family and friends, or personal borrowing.

Sometimes it isn’t easy to raise funds from other sources, especially if it’s hard to explain your plans simply to others, so personal funding is often the only realistic source of initial funds.

Personal loans offer the advantage of fixed repayments over a specified period, making it easier to plan and manage your finances.

You can also use credit cards – and many people do – but this can end up being an expensive form of borrowing, and some people end up taking out new cards to fund the interest on their other cards.

Of course, you may be able to take out further borrowing against your home, but this comes with obvious risks if your business idea doesn’t take off as quickly as you want.

For sole traders in particular, self-funding and borrowing personally are often the only routes available until you build up a track record.

Bootstrapping can also be a positive choice. It maintains control, encourages careful spending, and allows you to move quickly without outside pressure.

Banks and finance companies

By far the most common source of finance comes from banks in the form of loans, overdrafts and other types of credit. Banks will want to see a realistic plan, forecasts and often security. For new businesses, directors’ or personal guarantees are common.

Overdrafts can provide flexibility but are repayable at any time. Credit cards can smooth cash flow, but are expensive if relied on long-term.

Alongside high street banks, there are online lenders and peer-to-peer platforms that specialise in small business loans.

These can be quicker to arrange but often at a higher cost. Some entrepreneurs consider borrowing more on a mortgage, though this ties business risk directly to the home.

For help weighing options, see our guide to choosing the right business loan. A quick reality note for 2025: borrowing costs are materially higher than a decade ago, so test affordability and leave headroom.

Alternative finance and invoice funding

Some businesses cannot afford to wait 30, 60 or 90 days for invoices to be paid. Invoice finance and factoring let you release cash tied up in unpaid invoices.

The finance company pays most of the invoice value up front, then collects from your customer when due. You pay a fee and a percentage of the invoice. This can stop you from needing to borrow a lump sum to keep cash moving.

Other alternatives include merchant cash advances, where you borrow against future card sales, and revenue-based finance models sometimes used by e-commerce or SaaS businesses.

These are quick to set up but usually more expensive than mainstream borrowing. Invoice finance is often easier if you operate as a limited company with B2B customers.

Business angels, VCs and crowdfunding

If you want to raise outside money rather than borrow it, investors are another option. This usually means incorporating as a limited company.

Business angels are wealthy individuals, often with experience in your sector, who invest their own money.

Venture capitalists invest larger sums, typically one million pounds or more, but expect very high growth.

Equity crowdfunding platforms allow many smaller investors to back your company in return for shares.

Investment can be attractive because you do not have to make monthly repayments, and you may benefit from the investor’s expertise and contacts. The trade-off is dilution.

You are giving away part of your company and some control.

Angels and VCs will expect you to pitch, provide a clear growth plan and explain your exit strategy. They will also expect you to have taken risks yourself.

It is worth stressing that getting fifty thousand pounds from an investor may sound exciting, but that money can disappear quickly, and once it is gone, you still have someone else who owns a significant part of your business.

Investors want a return, not a job.

SEIS and EIS in brief

For limited companies, two UK tax reliefs help attract investors. The Seed Enterprise Investment Scheme supports very early stage raises. Since April 2023, eligible companies can raise up to two hundred and fifty thousand pounds, generally within three years of first trade, and investors can claim income tax relief at fifty percent, with capital gains and loss relief features if conditions are met.

SEIS is only for UK-registered limited companies and not for sole traders or partnerships. The Enterprise Investment Scheme supports larger, growth-stage raises. It offers thirty percent income tax relief to investors and higher overall funding limits, alongside rules on qualifying trades, risk to capital and use of funds.

Government support, grants and tax reliefs

Other sources of finance include government-backed support and grants. The Start Up Loans programme run by the British Business Bank offers up to twenty five thousand pounds per individual at a fixed interest rate, plus mentoring support.

If you have co-founders, each person is eligible to apply. The British Business Bank also runs market-wide programmes such as the Recovery Loan Scheme or its successor. Check what is currently open in 2025.

Innovate UK funds specific technology and research projects.

Most business grants are targeted at specific sectors, regions or activities and rarely cover all costs. If you are developing something novel, R&D tax relief can reduce your Corporation Tax bill or generate a payable credit, but rules changed significantly in 2023 and 2024, so read the latest guidance.

Management or digital support schemes such as Help to Grow have run in recent years; check current availability and terms.

Other routes for very small businesses

If banks say no, you still have options. Community Development Finance Institutions may lend to businesses that mainstream lenders reject.

See the UK industry body for a directory: Responsible Finance.

Some credit unions offer small business loans and accounts. Rewards-based crowdfunding on platforms such as Kickstarter and Indiegogo can be suitable for product launches where backers pre-order or receive perks rather than equity.

Local growth hubs and incubators or accelerators sometimes offer small grants, workspace or mentoring.

If you are hiring, watch for time-limited subsidies, apprenticeships or local schemes. If you are locating in a designated Freeport or Enterprise Zone, check for local business rates reliefs or capital allowances.

Availability varies by area and changes over time.

FAQs

Can sole traders get a business loan? Yes, but approval often relies on personal credit and security, and lenders may assess the borrowing as a personal loan.

Do I need to form a company to raise investment? For equity, yes. Angels, VCs, and equity crowdfunding require a limited company to issue shares.

How much can I borrow with Start Up Loans? Up to twenty five thousand pounds per individual, subject to eligibility and assessment.

Can I mix sources? Yes, many firms blend savings, a small loan and invoice finance. Keep overall affordability in view.

I had a Bounce Back Loan. Will that affect new borrowing? Lenders will look at existing commitments and repayment history. Be ready to evidence affordability.

What if a bank says no? Speak to your accountant, try reputable online lenders, explore CDFIs or credit unions and consider rewards-based crowdfunding if you have a product audience.

Our final thoughts on funding

There is no single best way to fund a new business. The right choice depends on your type of business, the amount you need, how quickly you need it, and how much control you want to maintain.

• Personal funds give you some freedom, but put savings at risk.
• Bank loans and overdrafts are structured but come with guarantees.
• Investors can unlock growth but dilute ownership.
• Grants and tax reliefs are valuable but specific.

Whatever route you choose, take professional advice before committing. An accountant or adviser can help you understand the costs, risks, and tax implications, so you don’t take on more than you can handle.