What sources of funding are available for UK start-ups?

Written by Tom Montague – Sales Director.

Earlier this year, more than half of science and technology start-up founders surveyed by the government said that the availability of funding was holding back their company’s growth.

Investment levels around the world slid after the pandemic, and the UK was no exception. However, the good news is that investment is, at last, creeping back up, with the UK still leading the rest of Europe.

But where to look for that investment?

Aside from venture funding – which we looked at last month – there are a number of sources of funding for start-ups which offer a range of grants and loans. Here are some of the options:

Innovate UK Smart Grants

Available through UK Research and Innovation (UKRI), Smart Grants are aimed at 'disruptive and innovative' businesses, and are usually focused on R&D. The innovation is required to have a solid strategy to generate 'considerable' economic benefits for the UK, and must involve a completely new product, service or process, or a brand-new use for an existing one.

They're available for a business at any stage of its evolution, with grants of up to £2m. Businesses can apply at any time, with quarterly funding rounds each year, each of which will have specific criteria and guidelines. New opportunities are published here.

Regional funding from nations and local boroughs

Alongside UK-wide funding schemes, after a huge expansion in 2021, there’s a large number of national and regional programmes. 

Some offer grants and loans, while others provide discount or rebate schemes for purchases such as new IT equipment. You’ll find there's typically a requirement to do something which helps local employment and brings broader benefits to the area. You’ll find a round-up of what's available from the British Business Bank, here.

Crowdfunding

Crowdfunding allows start-ups to connect with potential funders – many of whom will provide relatively small amounts. Reward-based crowdfunding, such as Kickstarter campaigns for new product launches, sees the investors rewarded with those products, or with a discounted price.

Equity crowdfunding, which is a rather more formal and professional process, allows investors to buy shares through one of a number of regulated platforms. Again, most are likely to be investing only small amounts. There's a list of platforms on the UK Crowdfunding Association website, here.

Peer-to-peer business loans

Peer-to-peer business loans allow individuals or businesses to lend directly to other businesses through lending platforms, bypassing traditional banks.

They’re growing in popularity; the process is simple, loans are processed quickly, and the company retains full control of its business. However, interest rates can be higher than for traditional business loans, there may be fees to pay, and borrowers usually have to provide personal guarantees. Lending research agency 4thWay has a list of its top-rated platforms, here. 

Traditional business loans

There are more than 100 lenders in the UK offering traditional business loans, with a wide range of repayment terms. 

You'll need a strong business plan and cash flow forecast, and may need to provide security for the loan, such as property or a Directors' & Personal Guarantee. MoneySupermarket has a comparison site, Think Business Loans, here. 

Start-up loans

Government-backed Start Up Loans are available through the British Business Bank and are targeted particularly at businesses that have struggled to get finance from traditional lenders. 

They're provided through the Start Up Loans Company, with loans of between £500 and £25,000 payable over one to five years, at a fixed interest rate of six per cent, per annum. The business needs to be based in the UK and less than three years old. Start-up loans are personal, unsecured loans, and also come with a year's mentoring. 

Angel investors

Angel investors are the biggest source of investment in start-ups and early-stage businesses in the UK and may be individuals or a syndicate. Angel investors tend to be entrepreneurs themselves, and generally take a stake of around ten per cent to 20 per cent in the business. 

Alongside the cash, they provide mentoring, support, and a network of contacts – but will expect to take a hands-on approach to the way the business is run and may insist on an exit strategy. The amounts available are generally between £15,000 and £500,000, but large syndicates may offer up to £2m. There's more information from the UK Business Angels Association, here.

If you want to know more about how Howden support technology businesses, find out here.