Banks usually want trading history and security, which a new business does not have, so a bank loan is often hard for a startup to get. It is also often a poor fit for what a startup needs the money for.

A better way to compare funding is by what each pound costs. This post puts numbers against each route, from the cheapest to the most expensive.

Funding routes from cheapest to most expensive

In rough order of cost: grants, government-backed loans, finance secured on assets, revenue-based finance, and equity. Equity costs the most if the company does well, because the investor keeps a share of its value.

Worked example — illustrative figures. Four ways to raise £25,000, and what each one ends up costing.
• 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 fee looks lower than the loan interest, and the section on revenue-based finance below shows why it costs more.
• 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.
This is why selling shares to pay for equipment or stock costs far more than the other routes if the company does well.

Grants

Grants do not have to be repaid and cost no shares. They are competitive, tied to specific projects, and offered by many different funders, each opening and closing on its own timetable.

Grants rarely cover the whole cost of a project. 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, which is work nearer to being sold. Medium-sized organisations get up to 60% on the earlier-stage categories and large organisations up to 50%.

This percentage is called the intervention rate. A £100,000 project funded at 70% still needs £30,000 of your own money.

Grants no longer reduce an R&D claim under the merged scheme or the intensive support route. A revenue grant is taxable income, so it can reduce a trading loss, and with it the payable credit under the intensive support route. Our post on R&D relief for startups covers the detail.

To find grants, start with your local growth hub and Swoop's funding platform, which lets a business compare loans, grants and other finance. Swoop Finance Limited is a credit broker authorised and regulated by the Financial Conduct Authority (FRN 936513). We may receive a referral fee from Swoop if a facility completes.

Start Up Loans

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. Each owner who helps control the business can apply, up to a maximum of £100,000 for a single business.

Two things changed on 6 April 2026:

  • The fixed rate rose from 6% to 7.5%. It is the same rate whatever your sector or credit profile. Applications that had passed their credit check before 6 April 2026 had 90 days to complete at 6%.
  • Eligibility widened from 36 months of trading to 60 months. A business in its fourth or fifth year of trading can now apply for a first Start Up Loan.

Start Up Loans are personal loans to the founder. The company does not borrow the money, and you remain personally liable whatever happens to the company. This is how the scheme can lend without trading history or security, so decide whether you accept that personal liability before you apply.

Illustrative comparison. Two founders each raise £25,000 for the same product launch.
• 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 early, the loan founder still owes up to £25,000 personally and the equity founder owes nothing, because the investor carries that risk. If the business is sold for £3 million, the loan cost the first founder £5,056 in interest and the shares cost the second founder £300,000. Which suits you depends on how likely you think each outcome is.

The Growth Guarantee Scheme

If a lender is willing to lend but you do not have the security it wants, the government-backed Growth Guarantee Scheme can help. It gives the lender a 70% guarantee on facilities of up to £2 million for businesses with turnover up to £45 million, and runs to 31 March 2030. Changes announced in July 2026, including a higher turnover limit and longer terms, were still being put in place with lenders in September.

The guarantee protects the lender. You remain 100% liable for the debt, and the lender sets the loan terms in the usual way.

Crowdfunding

Rewards crowdfunding pre-sells your product to pay for making it. For a consumer product it tests demand and pays for production without a loan or selling shares. It also commits you to delivering to hundreds of backers, which is a risk if your cost per unit was underestimated. Include the platform fee, payment processing, fulfilment and lost or damaged units when you set the target.

Equity crowdfunding sells small stakes to many investors online. It can raise significant sums and gives you a base of supporters. It needs the same preparation as an angel round: up-to-date accounts, a valuation you can justify, and SEIS or EIS advance assurance. It also leaves you with a large number of shareholders, which can complicate later rounds.

Revenue-based finance

If you have recurring revenue, revenue-based finance advances cash that you repay as a percentage of income. Repayments fall in a weak month and you give up no shares. Compare the price carefully, as the worked example shows.

Worked example — illustrative figures. £25,000 advanced at a 10% flat fee, repaid at 8% of £20,000 monthly revenue.
• Total repayable: £27,500, at £1,600 a month, cleared in about 17 months.
• A 10% flat fee works out at a higher annual interest rate. You repay as you go, so the average balance you have the use of is around £13,000.
• £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%.
Convert every offer to an annual rate on the average outstanding balance before comparing offers.

Asset and invoice finance are secured on a specific asset, such as a machine or an unpaid invoice, so the lender relies less on your trading history. They are often cheaper than unsecured borrowing for a young company. If the money is for equipment, or to release cash tied up in unpaid invoices, they are usually the right choice.

Angel and venture capital investment

Equity suits a high-growth, unproven business where failure is a real possibility and the possible gain is large. If a loan could pay for what you need, the loan will usually cost less.

UK angel investors rely heavily on the SEIS and EIS tax reliefs, and the scheme limits shape an early round:

  • SEIS — a company can raise a maximum of £250,000 in total. It must have gross assets of £350,000 or less and fewer than 25 full-time equivalent employees when the shares are issued, and the trade must not have been carried on for more than 3 years. 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. Under SEIS, an investor who reinvests a capital gain can get Capital Gains Tax relief on 50% of the amount invested, up to £100,000 of relief.

Get advance assurance before you pitch, as many angel investors expect it. Mistakes such as issuing the wrong class of shares, issuing EIS shares before the SEIS shares, or going over the £250,000 SEIS limit across several share issues can be avoided in advance, and some cannot be corrected afterwards. Our post on SEIS and EIS for founders covers them in detail.

R&D relief and pre-trading costs

Two further sources of money come from tax relief on spending the company has already made.

R&D tax relief. For accounting periods beginning on or after 1 April 2024 there are two regimes. The merged scheme gives an 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 small and medium-sized companies whose R&D is 30% or more of total expenditure can instead claim Enhanced R&D Intensive Support, worth up to about 27p of cash per £1 of qualifying spend. For a pre-revenue technical startup this is cash that costs no shares.

Pre-trading expenditure. Costs incurred in the seven years before you start trading can generally be treated as incurred on the first day of trading, which reduces the first Corporation Tax bill. This includes costs founders paid personally before incorporating, and the detail is in our post on pre-trading expenses.

What to do this week

  1. Write down what the money is for in one line, such as equipment, stock, a hire, more runway or an R&D project. The purpose decides which type of funding fits.
  2. Look for grants first, because they do not have to be repaid, and note the intervention rate so you know how much of your own money is needed.
  3. Convert every offer to an annual rate on the average outstanding balance. Flat fees, factor rates and revenue shares can only be compared once converted.
  4. Work out what equity would cost if the company is sold. Multiply a realistic sale value by the percentage the investor is asking for.
  5. Check whether you already qualify for R&D relief or pre-trading relief before raising anything.

How we help you choose

Before you commit, we work out what each option would cost against your cashflow and runway, including whether you need to raise anything yet. We include fees and repayment terms as well as the headline rate. Our startup funding guide goes route by route, and our funding page sets out how we help, what it costs and where to go for loans, grants and investors.