How to get funding for a business without a bank loan

Are you looking for alternative sources of finance for starting a business? Here's 10 ways to raise money that get around the credit impasse

With bank lending figures continuing to fall, thousands of entrepreneurs are looking for alternative sources of funding to get their business off the ground. If you’re one such firm, this article provides a comprehensive guide to the tools and options at your disposal.

See also: How to find the right route to funding

A Start Up Loan

If you are starting a new business or you have been trading for no longer than 24 months, you may be eligible for a government-backed Start Up Loan.

These are unsecured personal loans of up to £25,000 that must be used for business purposes and are repayable at a fixed 6% interest per annum.

Check the Start Up Loans website here to see if you are eligible

Bank overdrafts

For companies with fluctuating income, a bank overdraft can provide quick, flexible cashflow. The idea is simple: you dip into the overdraft in the leaner months, and come back out when the business picks up.

Most major banks charge interest only on the amount you overdraw, and many offer tailored packages for young businesses.

Have you considered getting a startup loan?

Applying is easier than you may think - and as well as financing, you can receive support and mentoring to help you get your business off the ground.

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For example, RBS/NatWest provides overdrafts up to £500, free of set-up fees, for a start-up business’ first 12 months (normally £50). However rates of interest on bank overdrafts are usually charged above base rates (e.g. 6.5% for RBS/NatWest), and in most cases the overdraft amount is repayable on demand.

Business cash advance

Companies such as Worldpay, Business Cash Advance and Credit for Merchants allow businesses to receive money upfront before debts and invoices have actually been paid.

Under the terms of the agreement, if you’re using a card payment machine, the financier purchases a fixed percentage of your future credit/debit card transactions at a discount, and then advances the cash into your bank account, usually within 10 working days. Repayments will be scheduled at a pre-agreed percentage of every transaction – usually between 10 and 20%.

With a cash advance, you can secure up to £100,000 without the burden of collateral or fixed monthly repayments, only paying the advance back when your customers pay you. But you may have to meet a rigorous set of conditions; for example Business Cash Advance insists all clients must have been in business for at least a year, with a minimum monthly turnover of £3,500 and the ability to process credit and debit card transactions.

Find out more about business cash advances here.

Asset finance

An asset-based loan works the same way as a mortgage. You borrow money against an existing possession, and, if you can’t meet your obligations, the asset is repossessed. Assets which can be used as collateral include property and premises, accounts receivable, inventory and equipment.

Although interest rates are often punitive, asset-based finance can be extremely useful for a company desperate for cash, or a business backed by valuable property which has yet to make major profits – such as a hotel or plant hire specialist.


Factoring can speed up cashflow and free up the time spent chasing bad debts, but there are drawbacks. A factor will impose a charge on each invoice, so your profit margins will be reduced, and it can be difficult to sever a contract with a factoring firm, because you have to compensate them for all outstanding invoices before you can formally part company. You can find out more in our guide to potential factoring fees.

One alternative, which could be more cost-effective, is MarketInvoice, an online marketplace which allows you to auction your invoice to a community of investors. You receive payment straight away and the investor will receive a profit when the payment finally comes in.

Angel investors

If you manage to impress a business angel, they may provide investment in return for an equity stake. Most angels are seasoned entrepreneurs themselves, so they know what you’re going through and they’re likely to be patient.

Furthermore, the process of finding and enticing an angel is far less daunting than you might think. Take a look at our investor directory to take a look at some of the most active angel funds and angel investors in the UK. If you can put together a tight pitch with realistic growth projections, and are prepared to give up a share of your business, this could be the route for you.


Crowdfunding is, essentially, an extension of the charity sponsorship page in the business world. People come together, on crowdfunding sites, to pool money towards a particular venture or idea – it could be 10 people putting in £500 each, or 3,000 people each giving £1.

Donors or investors on crowdfunding sites, such as Kickstarter or Crowdcube are typically private individuals providing small sums, so they’re unlikely to give you the sort of grilling, and rigorous conditions, an angel investor would. You can also scope out the popularity of your idea via a crowdfunding site, and get some crucial word-of-mouth marketing going.

If you’re interested in raising finance using crowdfunding take a look at our crowdfunding form. We’ve partnered with a few crowdfunding platforms to help businesses raise seed or growth capital and may be able to point you in the right direction.

Peer-to-peer loans

A peer-to-peer exchange site, such as Zopa or Funding Circle, will put you in touch with private lenders, and create a personal relationship between you and the lender – fostering trust and patience.

A number of companies are now well-established in this space, and several offer generous terms. Indeed Zopa waives all fees for loan applications, reduces interest rates for borrowers who make early repayments, and adds only a one-off fee of £130 to the cost of the loan.


If you only need a very small amount of money, you should think about a micro loan, which is tailored to your circumstances and can be used alongside funding from other sources.

A number of companies in the UK offer micro loans; for example Finance Wales offers funding from £5,000 to £25,000, with generous repayment terms ranging from one to five years.

Community schemes

A plethora of community development finance initiatives, or CDFIs, have been set up around the country to help individuals, and businesses, denied credit by banks and lending companies.

CDFIs provide help with everything from bridging loans and working capital to funds for property and equipment purchase, but their terms are usually restrictive; you usually have to be either a micro-business or a social enterprise, and be based in a disadvantaged area to qualify.

Family loans

If you want to keep things ultra-simple, a supportive family, with money to spare, can provide a fair, willing and reliable source of loan funding. Relatives and loved ones are more likely to trust you with their money than an outsider, and they will probably demand lower interest and fewer incentives than a commercial organisation.

There are of course some drawbacks when it comes to mixing family and finance, so it’s worth weighing up both the pros and cons of family funding.

Any finance model or provider should be researched thoroughly before you make any commitments, to ensure this is the best solution for your business. You will find more information on some of these finance options in our Raising Finance section. 

We would also recommend researching specific providers or funding platforms online and speaking to other businesses which have used them.


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