What is the Start Up Loan scheme?

The Start Up Loan is a government-backed personal loan of up to £25,000 at a fixed 6% interest rate, available to new UK businesses. It comes with free mentoring and is delivered through the British Business Bank.

What is SEIS and how does it benefit investors?

The Seed Enterprise Investment Scheme (SEIS) gives angel investors 50% income tax relief on investments up to £250,000 per company per year. Investors also benefit from Capital Gains Tax exemption on disposal and loss relief if the company fails.

What is invoice financing and is it suitable for my business?

Invoice finance lets you borrow against outstanding invoices, typically releasing 80–90% of the invoice value immediately. It suits B2B businesses with 30–90 day payment terms and turnover above around £50,000 per year. Costs are typically 1–3% of invoice value per month.

How much equity do VCs typically take?

At seed stage UK VCs typically take 15–25% equity for investments of £500k–£2M. Series A rounds (£3M–£10M) may dilute founders by a further 20–30%. Each subsequent round dilutes earlier shareholders proportionally unless anti-dilution provisions apply.

What is DSCR and why do banks care about it?

Debt Service Coverage Ratio (DSCR) measures whether your business generates enough cash to cover loan repayments. It is calculated as Net Operating Income divided by Total Debt Service. Most banks require a DSCR of at least 1.25, meaning your income is 25% higher than your debt obligations.

Business Funding Options in the UK: A Complete Guide | Yolist

From bank loans to venture capital, UK businesses have more funding options than ever. Choosing the right one depends on your stage, sector, growth ambitions, and how much control you want to retain. This guide explains every major route.

1. Overview: debt vs equity

All business funding falls into two broad categories:

Debt — you borrow money and repay it with interest. You keep full ownership. Examples: bank loans, invoice finance, asset finance.
Equity — you sell a share of your business. No repayment, but you give up some control and future profits. Examples: angel investment, venture capital, equity crowdfunding.

Key considerations: dilution (equity reduces your percentage ownership), control (institutional investors may require board seats or veto rights), and tax implications (interest on business loans is usually tax-deductible; equity proceeds are not a business expense).

2. Bank loans and overdrafts

High street banks — Barclays, HSBC, Lloyds, and NatWest — are the most common source of SME debt finance. Key points:

Term loans — Typically 1–10 years. Rates usually base rate + 2–8% depending on credit risk and security.
Overdrafts — Flexible, but expensive (arrangement fees plus interest). Best for short-term cash flow gaps, not long-term investment.
Security — Banks often require a personal guarantee (PG) for SMEs, meaning your personal assets are at risk if the business defaults.
British Business Bank guarantee schemes — ENABLE and the Guarantee scheme encourage banks to lend to viable businesses that lack sufficient collateral. The government takes a partial guarantee on the loan, reducing bank risk.

Prepare: 2–3 years of accounts (or management accounts), a cash flow forecast, and a clear statement of purpose before approaching a bank.

3. Government-backed loans

Start Up Loan — Up to £25,000 at a fixed 6% interest rate for new businesses. Unsecured, no PG. Comes with 12 months of free mentoring. Apply via startuploans.co.uk.
Recovery Loan Scheme (RLS) — Government provides an 80% guarantee to accredited lenders. Loans from £25,001 to £2M. Suitable for businesses impacted by economic uncertainty.
Growth Guarantee Scheme — Launched July 2024. 70% government guarantee on loans from £2,000 to £2M. Aimed at viable but underserved SMEs. Available through accredited lenders listed on the British Business Bank website.

4. Angel investment

Angel investors are high-net-worth individuals who invest their own money in early-stage businesses, typically in exchange for equity. Two HMRC schemes make UK angel investment highly tax-efficient:

SEIS (Seed Enterprise Investment Scheme) — 50% income tax relief on investments up to £250,000 per company per year. CGT exemption on gains. Ideal for very early-stage companies.
EIS (Enterprise Investment Scheme) — 30% income tax relief on investments up to £5M per company. Carry-back relief available. Suitable for slightly more established companies.

To attract angels, apply for HMRC Advance Assurance — a non-binding confirmation that your company is likely to qualify for SEIS/EIS, which significantly increases investor confidence.

Where to find angels: UK Business Angels Association (UKBAA), Angel Investment Network, and SyndicateRoom.

5. Venture capital

VC firms invest pooled funds from institutions into high-growth startups in exchange for equity. The typical funding journey:

Stage	Typical raise	Dilution
Pre-seed	£50k–£500k	5–15%
Seed	£500k–£3M	15–25%
Series A	£3M–£15M	20–30%
Series B+	£15M+	15–25% per round

Key terms in a term sheet: liquidation preferences, anti-dilution provisions, pro-rata rights, and board composition. Always use an experienced startup lawyer to review.

Notable UK VC firms: Index Ventures, Balderton Capital, Octopus Ventures, Notion Capital, Episode 1.

6. Crowdfunding

Reward crowdfunding — Backers receive a product or perk. Platforms: Kickstarter, Indiegogo. No equity given up, but you must deliver rewards.
Equity crowdfunding — Investors receive shares. Platforms: Crowdcube, Seedrs. Often EIS/SEIS eligible. Typical raise £100k–£3M.
Debt/P2P lending — Borrow from multiple individual lenders. Platforms: Funding Circle, Iwoca. Faster than banks but typically higher rates.

7. Asset finance

Asset finance lets you acquire equipment, vehicles, or machinery without a large upfront payment:

Hire purchase (HP) — Pay instalments and own the asset at the end. Appears on your balance sheet.
Finance lease — Use the asset for most of its life; lessor retains ownership. Off-balance-sheet under old accounting rules, but now on-balance-sheet under IFRS 16/FRS 102.
Operating lease — Shorter term, return the asset at the end. Useful for rapidly depreciating technology.

Asset finance is ideal when the asset being financed can serve as its own security.

8. Invoice finance

If your business has outstanding invoices, you can borrow against them immediately rather than waiting 30–90 days for payment.

Invoice factoring — The lender takes over your sales ledger and collects from your customers directly. Customers know you are using a factor.
Invoice discounting — You retain control of collections; the lender advances funds confidentially. Typically available only to businesses with stronger credit history.
Typical cost: 1–3% of invoice value per month, plus service fees.
Best suited to B2B businesses with turnover above £50,000 and payment terms of 30–90 days.

9. Grants

Grants do not need to be repaid, but are competitive and usually require match funding.

Innovate UK— Grants from £25,000 to £10M for R&D and innovation. Typically 60–70% of eligible costs, with the business funding the rest.
UK Shared Prosperity Fund (UKSPF) — Local grants for SMEs, skills, and communities. Administered via local Growth Hubs.
Rural grants — Farming Equipment and Technology Fund (FETF), Sustainable Farming Incentive (SFI).
Energy efficiency grants — Green Gas Support Scheme (GGSS) and Industrial Energy Transformation Fund (IETF) for decarbonisation.

See our dedicated UK Business Grants guide for a full breakdown.

10. Practical tips before applying for any funding

Improve your credit score first — Pay suppliers on time, reduce outstanding debt, correct any errors on your credit file (Experian, Equifax, Creditsafe for businesses).
Prepare a 3-year financial forecast — Revenue, costs, EBITDA, and cash flow. Lenders and investors need to see how you will repay or generate returns.
Understand your DSCR— Debt Service Coverage Ratio = Net Operating Income / Total Debt Service. Banks typically require DSCR > 1.25.
Do not raise more than you need — Excess debt creates repayment pressure; excess equity dilutes your stake unnecessarily.
Get specialist advice — An accountant or finance broker can dramatically improve your chances and find rates you would not find independently.

Useful resources

→ Also read: UK Business Grants 2024/25

→ Also read: Startup Loans & Business Funding