Best business funding alternatives

Securing funding is essential to getting your new business quickly off the ground.

Our guide to alternative business funding reveals the different funding options for raising finance for a new business.

Raising finance for a new business no longer means a visit to your bank manager.

A vast array of alternative business funding options have sprung up over the past few years, offering different ways to raise funds for your new business.

Knowing what type of funding to apply for and what investment options are right for your new business start-up can be a challenge.

Here’s our guide to some of the more popular business funding alternatives.

Small business government grants

The government offers a number of grants to help new businesses get started. In 2016, it had over 537 schemes for small and new businesses.

A handy finance scheme finder will help you choose the best schemes to apply for.

Most grants don’t have to be repaid, but are very specific in their requirements.

Some focus on community development, such as the Cardiff connection voucher scheme for free broadband, or are business specific, such as the Childcare Business grant for setting up a nursery or childminding business.

Grants tend to be smaller than other types of funding.

Small business start up loan schemes

Usually government backed, such as Start Up Loans, these provide unsecured funding at lower interest rates than from other lenders.

Start Up Loans works with regional partners and offers a network of business mentors as well, giving support as well as funding.

You can apply for a loan up to £25,000 with interest rates of around 6%. You’ll need a strong application but Start Up Loans is a good place to start.

Crowdfunding for start ups

Crowdfunding is a popular way to raise money directly from the public and small investors. Crowdfunding platforms in the UK include Crowdfunder and Crowd Cube.

All crowdfunding schemes work in a similar way. Apply with details of your business idea, plan and why people should invest on the platform.

Smaller investors review your business plan, then pledge to fund your business. Typically, you’ll need to deliver something for the investment, such as early access to a product you’re developing.

It’s a great way to test your business idea with potential customers, who can evaluate what you’re offering and give feedback and support as you launch your business.

Business angel funding

You may be able to finance your business by convincing wealthy individuals with readily available funds to invest.

While business angels lack the financial depth venture capital investors offer, they’re a good source for early business funding.

Business angels typically fund businesses in line with their values or personal missions, such as regenerating a local area or developing businesses to help specific sectors of society.

Finding a business angel can be difficult, and you’ll need to be confident in pitching directly to them.

Often, business angels run special events and new business start-ups can apply to pitch for investment.

Start your search at business angel networks such as Angel Investment Network and Angels Den.

Regional and community funding

The Regional Growth Fund is a government scheme that secures funding for businesses looking to run sustainable businesses in specific regions.

It has raised over £16bn in funding as a mix of government and private sector investment, creating over 150,000 jobs.

Suitable for businesses looking to raise less than £1m, get started at the Regional Growth Fund.

Invoice factoring

Suitable for businesses that are trading, invoice financiers buy your unpaid invoices and pay you a percentage of the total amount upfront – usually around 85% – then collect the debt on your behalf, paying the remaining 15% once the invoice is paid.

You then pay the invoice factoring company fees and interest, which can eat into business profits and you won’t have a book debt value that can be used to raise finance later.

However, they’re useful for generating cashflow and can free you from managing your business ledger.

Want to learn how to manage your start-up’s finances? Check out our free online courses in partnership with the Open University on being an entrepreneur.

Our free Learn with Start Up Loans courses include:

Plus free courses on finance and accounting, project management, and leadership.

Disclaimer: While we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.

Your previously read articles