Ask most people how a business gets funded and they will say "a bank loan". For a startup that is often the hardest money to get and rarely the best suited to the job. Banks want trading history and security a new business does not have.
The useful way to think about this is not "who will say yes" but what each pound actually costs. Priced properly, the options sit in a clear order — and founders who take them out of order routinely pay ten or a hundred times more than they needed to. This piece puts real numbers against each route so you can see the ladder rather than take the word of whoever replied to your email first.
The cost ladder, in order
Roughly cheapest to most expensive: grants, then government-backed debt, then asset-secured finance, then revenue-based finance, then equity. Equity is last for a reason that becomes obvious once you price it.
• Innovate UK grant at a 70% intervention rate: your project costs £35,714, the grant covers £25,000 and you fund £10,714. Cost of the £25,000: nil. You give up no ownership and repay nothing.
• Start Up Loan, £25,000 over 5 years at the fixed 7.5%: monthly repayment about £501, total repaid roughly £30,056. Cost: about £5,056.
• Revenue-based finance, £25,000 at a 10% flat fee repaid at 8% of monthly revenue: fee £2,500, cleared in about 17 months on £20,000 monthly revenue. The headline looks cheaper than the loan — but see the section below on why it is not.
• Equity, selling 10% for £25,000. If the company is later sold for £3 million, that 10% is worth £300,000. Cost of the same £25,000: £300,000.
The equity line is not a scare story. It is the correct arithmetic, and it is why using equity to buy a laptop or a pallet of stock is one of the most expensive decisions a founder can make.
Grants: the only genuinely free money
Non-repayable and non-dilutive. The catch is that grants are competitive, project-specific and scattered across hundreds of sources that open and close on their own timetables.
They are also almost never 100% of the cost. Innovate UK funds a percentage of eligible project costs, and the percentage depends on your size and how close to market the work is. A micro or small business can receive up to 70% of costs for a feasibility study or industrial research, and up to 45% for experimental development — work that is nearer to being sold. Medium-sized organisations get up to 60% on the earlier-stage categories and large organisations up to 50%.
That intervention rate is the number to plan around: a £100,000 project at 70% still needs £30,000 of your own money in place before the grant is any use to you.
Grants also interact with R&D tax relief, and the interaction is not intuitive — subsidised expenditure can push a claim between schemes and change what it is worth. Take the grant with your eyes open on that point rather than discovering it at the year end; our post on R&D relief for startups covers the mechanics.
Finding them is the real work, which is what our Swoop-powered portal is for: one profile matched against live grant sources so you are not searching blind.
Start Up Loans — and what changed on 6 April 2026
The British Business Bank's Start Up Loans scheme lends £500 to £25,000 per founder over a term of 1 to 5 years, with no application fee and no early repayment charge, plus up to 12 months of free mentoring. Up to four co-founders can each apply, taking a single business to a maximum of £100,000.
Two things changed on 6 April 2026 and a lot of published advice has not caught up:
- The fixed rate rose from 6% to 7.5%. It is the same rate whatever your sector or credit profile. Anyone who drew down before 6 April 2026 keeps 6% for the life of their loan.
- Eligibility widened from 36 months of trading to 60 months. A business trading for four or five years can now apply for a first Start Up Loan, where previously it could not.
The critical structural point, unchanged: these are personal loans to the founder, not company debt. You are liable individually whatever happens to the company. That is the trade for getting money with no trading history and no security, and it should be a conscious decision rather than a detail noticed at signing.
• One takes a Start Up Loan at 7.5% over five years: £5,056 of interest, and the company remains entirely theirs.
• The other sells 10% of the equity at a £250,000 post-money valuation.
If the business fails, the loan founder still owes about £25,000 personally and the equity founder owes nothing — that is the genuine risk transfer equity buys. If the business is sold for £3 million, the loan founder is £5,056 down and the equity founder is £300,000 down. Which is the right answer depends entirely on your honest read of the odds, but it should be answered deliberately.
The Growth Guarantee Scheme: the bank loan, made possible
If a lender likes your business but cannot get comfortable on security, the government-backed Growth Guarantee Scheme often bridges the gap. It gives the lender a 70% guarantee on facilities of up to £2 million for SMEs with turnover up to £54 million, and has been extended to 31 March 2030. From 2026, facilities up to £1.1 million can run for up to ten years.
Understand what it does and does not do. The guarantee protects the lender. You remain 100% liable for the debt. It is a mechanism for getting a commercial decision over the line, not a softening of the terms, and founders who read it as a safety net have misread it.
Crowdfunding: capital and customers at once
Rewards crowdfunding pre-sells your product to fund making it. For a consumer product it is close to ideal: it validates demand, funds production, and costs neither debt nor dilution. It also creates a delivery obligation to hundreds of strangers, which is a real operational risk if your unit economics were optimistic. Price in the platform fee, payment processing, fulfilment and the units that go missing before you set the target.
Equity crowdfunding sells small stakes to many investors online. It raises real money and builds an advocate base, but it is a full fundraise with the same investor-readiness demands as an angel round — clean numbers, a defensible valuation and SEIS or EIS advance assurance in hand. It also leaves you with a large number of shareholders, which can complicate later rounds.
Revenue-based finance: read the fee as a rate
If you have recurring revenue, revenue-based finance advances cash repaid as a percentage of income. It flexes with a bad month and costs no equity, which is genuinely attractive. The pricing is where care is needed.
• Total repayable: £27,500, at £1,600 a month, cleared in about 17 months.
• A 10% flat fee is not a 10% interest rate. You repay progressively, so the average balance you actually have the use of is around £13,000, not £25,000.
• £2,500 on an average balance of £13,000 over 17 months is roughly 14% a year — nearly double the Start Up Loan's 7.5%.
Flat fees always flatter the lender. Convert every offer to an annual rate on the average outstanding balance before comparing anything.
Asset and invoice finance sit alongside this and are often the cheapest debt available to a young company, because the lending is secured on a specific thing — the machine, or the unpaid invoice — rather than on your history. If the money is going towards equipment or a receivable, this is usually the right instrument.
Angels and VCs: the most expensive money, correctly used
Equity is the right fuel for a genuinely high-growth, unproven bet where failure is a real possibility and the upside is large. It is the wrong fuel for anything a loan could cover.
UK angels lean heavily on the venture capital schemes, and the numbers set the shape of an early round:
- SEIS — a company can raise a maximum of £250,000 in total. It must have gross assets under £350,000 and fewer than 25 full-time equivalent employees when the shares are issued, and the trade must be under 3 years old. Investors get 50% income tax relief on up to £200,000 a year.
- EIS — investors get 30% relief on up to £1 million a year, or £2 million where at least £1 million goes into knowledge-intensive companies.
- Both require the investor to hold the shares for at least 3 years, and SEIS carries a capital gains exemption on 50% of a reinvested gain, capped at £100,000.
Get advance assurance before you pitch. Many angels will not engage without it, and the sequencing failures that break a round — issuing the wrong share class, taking money before assurance, exceeding the £250,000 SEIS ceiling in stages — are all avoidable in advance and unfixable afterwards. Our post on SEIS and EIS for founders covers the traps in detail.
The money you already have: R&D relief and pre-trading costs
Two sources sit inside the business rather than outside it, and both are regularly left on the table.
R&D tax relief. For accounting periods beginning on or after 1 April 2024 there are two regimes. The merged scheme gives an above-the-line expenditure credit at 20% of qualifying spend, which is itself taxable, so the net benefit is nearer 15% once Corporation Tax at 25% is applied. Loss-making SMEs whose R&D is 30% or more of total expenditure can instead claim Enhanced R&D Intensive Support, worth roughly 27p of cash per £1 of qualifying spend. For a pre-revenue technical startup that is often the largest single cheque of the year, and it arrives without dilution.
Pre-trading expenditure. Costs incurred in the seven years before you start trading can generally be treated as incurred on day one, which cuts the first Corporation Tax bill. Founders who paid for things personally before incorporating routinely forget this — the detail is in our post on pre-trading expenses.
What to do this week
- Write down what the money is for in one line. Equipment, stock, a hire, a runway extension, an R&D project. The purpose decides the instrument, and every mismatched raise starts by skipping this.
- Search grants first, because it is the only tier with no cost, and note the intervention rate so you know what you must match.
- Convert every offer to an annual rate on the average outstanding balance. Flat fees, factor rates and revenue shares are not comparable until you do.
- Price the equity option in exit terms, not today's terms. Take your honest target exit value and multiply by the percentage being asked for. That is the real cost.
- Check whether you already qualify for R&D relief or pre-trading relief before raising anything. Money you are already owed is cheaper than money anyone will lend you.
How we help you choose
Every client gets the funding portal — one profile matched against more than 1,000 providers with grants surfaced first — plus the part software cannot do: we price each option properly against your cashflow and runway before you commit, and say plainly when the answer is that you should not raise at all yet. The cheapest headline rate is frequently not the cheapest money. Our startup funding guide goes route by route. Get started from £49 + VAT a month.
