How to raise money for a business without a loan

When raising money for your business, it's important to consider all your options carefully and do your research to find the right funding model. Here are nine approaches that don't involve getting a business loan.

1. Self-funding through savings

There are plenty of entrepreneurs who started a business using their own savings. If you opt for this approach, make sure you’re not putting your personal finances in jeopardy. If you’ve already got a business that you want to expand, you could consider ‘bootstrapping’, which is where you pour all the profits you make straight back into the company. However, you need to think about how you’ll pay your day-to-day bills.

2. Money from friends and family members

If you can’t secure a loan from a bank, you might want to consider borrowing from your loved ones. However, this can strain relationships, so think things through carefully before taking this approach. Make sure you formalise everything, including when you’ll repay the money and whether you will owe interest.

3. Business grants

The UK has over a hundred business grants that are designed to help you start or grow a business. These tend to have complicated application processes and you’ll need to jump through several hoops to get one, but you don’t usually have to repay the grant money you're awarded. Most grants are targeted at specific sectors, regions and company sizes. Start by checking the list on GOV.UK to see what’s available.

4. Crowdfunding and peer-to-peer lending

Crowdfunding enables you to get finance from the general public. People agree to offer some funding in return for equity in your business, rewards or even as a donation. You’ll need to have a strong elevator pitch and explain how you intend to turn a profit and in what timescales. One big benefit of crowdfunding is that it can drum up interest in your product and create a buzz. 

Peer-to-Peer lending: This is similar to a bank loan, but rather than borrowing from a financial institution, you borrow from the public. Check out platforms like Zopa, Funding Circle and Ratesetter. As with bank loans, you need to pass a credit check and pay interest on your loan. On the plus side, applications tend to be quicker.

Equity crowdfunding: Investors give your business money in return for unlisted shares. Platforms are highly regulated, with rules around how much can be raised and how much people can invest.

Rewards crowdfunding: If you don’t want to give up equity, rewards crowdfunding might be for you. Under this model, you give investors special offers such as early access to products, discounts, limited editions, extra content, etc. 

Donation crowdfunding: This is where people donate money to your business. Typically, this tends to be for charities or other good causes.

5. Overdrafts and credit cards

Just because you’ve been turned down for a loan, doesn’t mean the business won’t have access to other forms of credit. For instance, you might be able to get an overdraft or credit card with your business bank account. Interest rates are often high, so this should really only be a solution for very short-term cash flow problems, rather than long-term financing.

6. Angel investors and venture finance

Angel investors are wealthy businesspeople who invest in start-ups or small companies. In addition to finance, they often offer mentorship and advice to help make your firm a success. You’ll usually need to give up a chunk of your equity, and you can expect them to want to be involved in the running of the organisation.

Venture capital firms also invest in businesses to help them make a profit, in return for equity shares. You’ll need to be a high-growth organisation and it’s an extremely competitive process. 

Whether you’re looking at angel investors or venture capitalists, you’ll need a highly professional business plan and a strong growth strategy.

7. Invoice finance

If you’ve got a short-term cash flow problem, and you can’t get a loan to plug the gap, invoice finance could help. Essentially, it enables you to borrow money against the value of your unpaid invoices. This can get you access to much-needed cash to grow your business, without being at the mercy of late-paying clients. Typically you pay a small fee to sell your unpaid invoices. Some invoice finance companies also offer you advice and guidance to help make your business a success.

8. Business cash advance

Also known as a Merchant Cash Advance, this is a way of raising funding for businesses that accept debit and credit card payments. In essence, a provider will lend you money upfront, in return for a percentage of your card transactions plus a fee. You can use this option without having to offer up assets as security, as you would with a secure loan. 

9. Asset finance

There are two types of asset finance. Hire purchase, which allows you to spread the cost of vehicles or equipment, and asset refinance, which allows you to unlock the value of assets that you already own.

Hire purchase: With hire purchase, you lease the equipment or vehicles you need until the end of the repayment period, at which point you own the asset. It’s more expensive than paying for the item upfront but can help if you don’t have a suitable lump sum available. (Mobile phone contracts that include a handset work in a similar way).

Asset refinance: With asset refinance, providers will lend you money based on the value of your assets. They typically offer up to about 80% of the value. You then have to make repayments over time, plus interest (Remortgaging your home works in a similar fashion).