10 ways to raise money for your startup business

Small business ideas need funding to flourish. Securing income is essential, but choosing the right funding option can feel overwhelming. With loans, credit cards, angel investors and grants available, it can be tough to know where to start. This guide takes you through the options so you and your business can get off to a good start.

Equity finance and debt finance

You typically raise money for a business through one of two methods: equity finance or debt finance. Before we explore the individual funding options, let’s clarify the difference between these two types of financing.

Selling shares in your business is known as equity funding. This is available through angel investors, crowdfunding, venture capitalists and other sources of funding. Shareholders benefit from a business's success, either in the form of dividends or from the proceeds of a sale or buyout. 

Alternatively, you can explore debt finance to fund your business. This involves borrowing money through loans, credit cards or asset finance to name a few. Unlike equity finance, debt finance is often obtained from banks or alternative lenders. It carries risks, including repayment pressures and potential impacts on your credit score if you miss payments.

Below are ten realistic ways to raise money for your business using both types of financing as well as grants, gifts or your own savings.

1. Loans

When considering loans to get funding, you might think of business loans. But these can be hard to obtain for new businesses, especially without a personal guarantee. Fortunately, other loan options may be more suitable for startups. 

Startup loans are a good place to start because they are specifically for new businesses. To qualify, your business must be less than three years old, which means you need to apply during the early stage of your operation or shortly after you start trading. You need to present a solid business plan that includes financial forecasts and a cash flow management strategy. Keep in mind that these loans often come with higher interest rates and smaller borrowing amounts.

Personal loans are another option, but remember that with these, you’re personally liable for the debt. If you struggle to repay the debt, it can impact your personal credit score. You also need to make sure the lender permits the use of personal loans for business purposes.

2. Invoice finance

If you're already trading, you may have experienced the frustrating wait for invoice payments. Late payments or a month full of bills can quickly create cash flow issues. If this sounds familiar, invoice finance could be a helpful solution.

Invoice finance provides cash advances on unpaid invoices, allowing you to access funds before your customer pays. A lender typically gives you a percentage of the invoice amount upfront and takes their fee once the invoice is settled, paying you the remaining balance. You can choose to let the lender handle invoice collection or chase it yourself.

3. Credit cards

A business credit card works like a personal credit card. If approved, the lender sets a spending limit, and interest accrues on any outstanding balance. Ideally, you should pay it off each month to avoid interest. This can be challenging when funds are tight, so only spend what you can afford to repay.

A credit card can help cover unexpected expenses, streamline employee spending, and even offer rewards like cashback or air miles. It provides flexibility, and using it responsibly can help build your business's credit score, improving your chances of future loan approval. 

4. Asset finance 

If your business needs equipment, a vehicle or technology to grow, asset finance might be an option. This type of financing is a secured loan, meaning the funds purchase an asset that can serve as collateral. Because it’s secured, startups may find it easier to obtain.

Depending on the loan agreement, you might have the option to return the asset at the end of the term or keep it, making upgrades more manageable. However, as with any loan, it’s crucial to keep up with repayments. Falling behind could lead to the seizure of the asset, significantly impacting your business’s ability to operate.

5. Business line of credit

A business line of credit combines the features of a credit card and a loan. A lender sets a limit that your business can draw upon as needed. You can use the full amount, a portion or none at all, and interest only applies to the amount you use. Unlike a traditional business loan, there’s no fixed monthly repayment – you simply repay borrowed funds by a specified date. This offers flexibility and gives your business greater control over borrowing.

The interest rate depends on your agreement. You can often secure the line of credit with an asset, which may lower the interest rate compared to an unsecured option.

6. Government funding and grants

One of the most popular ways for startup businesses to secure funding in the first three years is with a government-backed Start Up Loan. Managed by the Start Up Loan Company under the British Business Bank, this program differs from traditional startup loans. It allows new businesses to borrow between £500 and £25,000 at a fixed interest rate of 6%.

There are no set-up or application fees, and if approved, you receive 12 months of mentoring and business support. However, the application process can be time-consuming and requires a well-prepared business plan for approval.

Startup government grants are also available, but they can be highly competitive. Unlike loans, you don’t need to repay grants, but this means a lot of businesses tend to apply for the same grant. As a result, it’s best not to assume your grant application will be successful, as that may lead to disappointment. It’s also essential to research eligibility thoroughly before investing time in grant applications.

7. Crowdfunding

Websites like Kickstarter and Seedr have become popular in recent years, helping many small businesses secure funding for their ideas. Crowdfunding allows you to raise investment from a larger group of people, with each person contributing a smaller amount.

There are two types of crowdfunding: rewards-based and equity-based. In rewards-based crowdfunding, you offer a reward to investors, such as an advance preview of your goods or merchandise linked to your business. In equity crowdfunding, you give investors a stake in your business in exchange for funding.

Crowdfunding can be a viable option if you struggle to obtain financing from traditional lenders.

8. Angel investors

If you've watched shows like Dragons' Den, you’re likely familiar with the concept of an angel investor. An angel investor is typically a wealthy individual looking to invest in a new business. In exchange for their investment, they usually expect a stake in your company. You may also benefit from their expertise and network of contacts.

Angel investors may take a hands-on approach to business strategy and decision-making. This can be helpful if you’re unsure about the direction to take, but it may cause tension if visions clash. Since it’s their money on the line, angel investors can also apply pressure.

9. Peer-to-peer (P2P) lending

Like a blend of crowdfunding, angel investment and a loan, P2P lending allows your business to access financing through online platforms without going through traditional lenders. This option appeals to lenders because they can earn interest on their contributions, while borrowers may find it easier to secure funding. However, the process can still take time and requires extensive supporting documentation, including bank statements, tax returns, and cash-flow projections.

P2P lending is, as the name suggests, a type of lending. Unlike crowdfunding or angel investment, a P2P loan includes interest. You are expected to make repayments, usually on a monthly basis. Like any type of borrowing, falling behind on repayments may impact your credit score, making future borrowing difficult.

10. Family, friends and bootstrapping

Your friends and family have likely heard about your business idea. Conversations over dinner or in social settings can help you gauge interest in your business plan. As you refine your idea, keep them informed, as they might offer unexpected financial support.

You might also consider using your own money to fund your idea, a method known as bootstrapping. This approach gives you full control of your business and keeps you debt-free, but it carries risks. Investing your own cash can be especially challenging if your idea doesn’t succeed.

But if your concept does succeed, you can enjoy all the rewards that come with it. You won’t have any debt to repay or investors to share profits with.