Decide what the money is for
Before you apply for anything, be clear what the money is for and how it will be repaid or earn a return. A lender or investor needs a specific answer, such as “£40,000 of stock that sells through every 60 days at a 45% margin”. Applications go better when the use of the money is specific and your numbers show where repayments will come from.
Then match the type of funding to what the money is for:
- Buying things that earn money, such as stock or equipment, suits a loan or asset finance. A loan is usually the cheapest money, and you keep all your shares.
- Covering gaps in cashflow suits a working capital loan, invoice finance or a revolving credit facility, which is a credit limit you can draw on and repay as you need.
- Building something unproven, such as a new product, research and development or a move into a new market, suits grants first and then equity. A loan for unproven work often needs a personal guarantee, which leaves you owing the money yourself if the work fails.
What this guide covers
- Start Up Loans, grants, other lending, revenue-based finance and equity compared
- What each route costs, including personal guarantees and time
- What lenders and investors check
- Where to go for loans, grants and investors
The main funding routes
1. Start Up Loans (government-backed)
A Start Up Loan is £500 to £25,000 per founder, up to £100,000 for one business where each applicant owns shares and helps control it. The interest rate is fixed at 7.5%, the loan is repaid over 1 to 5 years, there is no application fee or early repayment fee, and you get up to 12 months of free mentoring. It is a personal loan to the founder for business use, so the business does not need a trading history, and it is the usual first borrowing for businesses that are pre-revenue or have just started trading. On 6 April 2026 the rate rose from 6% to 7.5%, and the scheme opened to businesses that have been trading for up to 60 months, up from 36.
2. Grants
Grants are awarded competitively. A grant does not have to be repaid, and you give up no shares for it. Innovate UK funds innovation projects, and there are regional growth funds and schemes for particular sectors, such as green technology, the creative industries and food production. An application takes days of work and success rates are low. Grants open and close through the year, so check what is open now. Your local growth hub, the government's business finance support finder and Swoop's funding platform are the places to start.
3. Bank and alternative debt
This covers term loans, overdrafts and revolving credit facilities. Banks usually want to see a trading history and often ask for a personal guarantee. Lenders other than banks usually decide faster and charge more. Compare offers on the total cost of credit, which is everything you repay on top of the amount you borrow.
AD Solicitors, a separate SRA-regulated law firm, has a guide to personal guarantees for directors.
4. Asset and invoice finance
Asset finance spreads the cost of equipment over time and is secured on the equipment itself, which makes it easier to get than an unsecured loan. Invoice finance advances a large share of the value of your unpaid invoices straight away. It helps a startup that sells to other businesses on 60-day payment terms, and it becomes expensive if you rely on it permanently.
5. Revenue-based finance
Revenue-based finance is for businesses with recurring revenue, such as subscriptions. You receive an advance and repay it as a percentage of each month's income, so repayments fall when revenue falls, and you give up no shares. The total you repay is capped at a multiple of the advance. A cap of 1.4 times the advance, repaid within 14 months, makes it an expensive way to borrow.
6. Equity
Equity means selling shares in the company, usually first to angel investors, who invest their own money, and later to venture capital funds. Over time it is the most expensive money you can take, because a 15% stake sold at seed stage in a company that succeeds can be worth millions later. It suits unproven work with a large potential upside. UK angels rely heavily on two tax reliefs, the Seed Enterprise Investment Scheme (SEIS) and the Enterprise Investment Scheme (EIS). Under SEIS a company can raise up to £250,000 and investors get 50% income tax relief. Under EIS a company can raise up to £24m over its life and investors get 30% relief. Most angels expect you to have advance assurance, HMRC's view that the company is likely to qualify, before you pitch. Our SEIS and EIS page explains how we prepare the application.
Three ways to fund £40,000
The figures below are illustrative, for a company that needs £40,000 to buy stock and hire one person.
- Start Up Loans. Two founders take £20,000 each at a fixed 7.5% over five years. Repayments are £801.52 a month between them, total repaid £48,091.08, so the money costs £8,091.08. The founders keep all their shares and owe the loans personally.
- Revenue-based finance. £40,000 advanced with a repayment cap of 1.4 times, repaid from monthly revenue over fourteen months. You repay £56,000, so the money costs £16,000, about twice the cost of the Start Up Loans. Repayments rise and fall with revenue, and in this example nobody gives a personal guarantee.
- Equity. An investor pays £40,000 for 10% of the company, and the money does not have to be repaid. If the company is later sold for £4m, that 10% is worth £400,000, ten times the cash raised.
In this example the same £40,000 costs about £8,090 as two Start Up Loans, £16,000 as revenue-based finance, or £400,000 as equity if the company is sold for £4m.
What every lender and investor checks
- Up-to-date accounts. The bookkeeping is current and any director's loans are explained.
- A forecast that holds up to questions. A monthly cashflow forecast with its assumptions written down, and a version showing what happens if sales come in lower.
- Your personal credit file. For early-stage borrowing, lenders look at the founders' personal credit records, because a young company has little credit history of its own.
- What the money is for. A specific use that suits the type of finance you are applying for.
Look at the cheaper routes first, in this order: grants, government-backed loans, asset and working capital finance, revenue-based finance, and then equity. Selling shares to pay for stock usually costs many times more than borrowing for it, as the example above shows.
Where to go next
For loans and grants, Swoop's funding platform 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). Buzz Accounting may receive a referral fee from Swoop if a facility completes. For investment, our investor readiness page covers the preparation, and our funding page explains how we help you get ready and what it costs.
