A Quick Guide To Start-Up Funding In The UK

There are various funding options to choose from

Getting the right financing behind your start-up, and growing it later on, are top of the to-do-list for any entrepreneur. But if you’re not sure where to start it can feel like you’re swimming against the tide.

Fortunately, even with COVID-19 uncertainty there are still many options available when it comes to accessing capital. This guide takes a brief look at them.

Startup loans

Startup loans are a popular way of financing a new business venture, especially if you already have a low debt-to-credit ratio and a good credit history. However, these loans often take weeks to actually arrive in your account, and since the 2008 credit crunch (and of course now the pandemic) loans have been tougher to come by. This means they’re not ideal if you need larger amounts of money quickly. We recommend shopping around online and comparing rates for the best deals.

Business lines of credit

Lines of credit are longer-term, ongoing ways of covering things like stock costs. Available credit is replenished every time you repay what you’ve drawn.

Interest is only paid when there’s a balance still outstanding. This makes lines of credit appealing to small businesses as they’re not as much of a financial burden as loans are.

Venture capital and angel investors

Again, popular options for ambitious entrepreneurs who are looking for the chance to gain elite mentorship and scale up their business fast.

Typically, angel investors come into play in the initial stages of a business and work on a smaller scale. Venture capitalists are more concerned with established businesses who are looking to expand, usually involving much more substantial sums of money.

Both these arrangements are about more than just achieving a financial injection. Companies that are successful in gaining these types of backing can also benefit from expertise and mentorship over a long period which can be invaluable. Bear in mind though that competition for angel and venture capital investment can be fierce, and you’re unlikely to get an investment on the exact terms you want.

Crowdfunding and peer-to-peer finance

Crowdfunding and peer-to-peer finance are growing in popularity at the fastest rate amongst British SMEs. Get it right, and large amounts of funding can be achieved very quickly, whilst also providing a great opportunity to get your brand noticed.

Go-to providers include Funding Circle, RateSetter and Zopa. Do your homework though, as some specialise in P2P scenarios where investors take a share of your equity, while others are based around loan provision by third parties.

Family and friends

Maybe you’ve got a wealthy great aunt Maude or a business-minded friend with some savings to invest. Family and friends are an obvious choice for fast financial backing (if you’re lucky enough). But make sure all terms are clearly documented and legal advice taken - the last thing you want is for things to turn sour, however close you are.

Business grants

The best thing about grants are that they don’t need to be paid back. Each grant type is offered by a different local, national or international body and will come with different terms.

However, like business loans, grants can take time to arrange so they’re perhaps not the best option for businesses who wish to grow quickly or who need to tackle a short-term cash flow problem. Grants will typically be funded by either the UK government or the European Union and run as a ‘competition’ where only the most promising applicants will ‘win’. There are literally hundreds of business grant types on offer and they change constantly, so again do your homework.

Don’t forget R&D grants

When looking to fund an innovative new product, service or process R&D grants can be a lifeline. The UK government has long encouraged business innovation and there’s a number of local and regional bodies plus other organisations that support R&D as a whole.

The first step is in identifying what different R&D grant schemes are available and what they’re offering. You also need a firm grasp of the application process, and know which specific grant your business will most benefit from - again, this is where the Myriad Associates team can advise you.

What will R&D grants fund?

R&D grants can fund any projects where a new product, process or service is created, or where an existing one is substantially upgraded. Minor product updates are unlikely to get support - think new product lines, flavours, packaging changes etc.

R&D grants can fund all sorts of innovative activities, but typically they’ll be for feasibility studies, developing prototypes or collaborating with outside organisations. These types of grants are also normally for one-off time-specific projects as opposed to broader innovation efforts. Projects usually last six to 36 months, and grants will usually cover 20%-50% of project costs (not the whole thing).

Innovate UK also provides schemes like Knowledge Transfer Partnerships, designed to assist businesses in collaborating with academic institutions.

Find out more about R&D grants on our R&D grants page.

There’s R&D Tax Credits too

Ok they’re not grants, but R&D Tax Credits can be worth thousands of pounds to innovative UK businesses so you really won’t want to miss out.

R&D Tax Credits are a government-backed tax incentive which can reduce a company's corporation tax bill. Companies that have made a loss can receive the benefit as a cash credit instead. Indeed, SMEs can receive as much as 33% of eligible research and development costs back via the scheme - it’s incredibly generous as you can see.

To find out more and how to claim, see our R&D Tax Credits page.

Use our Tax Cloud portal to kick off your claim today

Looking to claim R&D Tax Credits? The Tax Cloud portal is for you.

Supported by our team of technical & costing experts, you can make a stress-free claim today. Plus, with almost 20 years making claims we will be pleased to advise you every step of the way.

If you wish to speak to us about anything we’ve covered, please do call 0207 360 4437 or use our contact page. We’re here to help.

Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud