10 ways to fund your business

Are you looking for alternative sources of finance for starting a business? Here are some key ways to raise money that get around the credit impasse

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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.

But what’s the difference between a Start Up Loan and a bank loan? What happens if you use a bank overdraft? How could angel investors and peer-to-peer lending contribute to your business? And why are community schemes so restrictive?
We’ll provide the information to these key questions, and more.

In this article, we’ll cover:

Click on the links above to learn more about that section in particular. Or, read the complete article for a thorough guide about alternative options to bank loans.

How to get funding for a business

Here, we profile some of the main ways that you could finance your business without a bank loan.


Got some money in the bank? With interest rates having only increased by a quarter of a percentage point (to 0.75%) since the all time low of the financial crisis, it’s not doing much for you sitting in an account. Or perhaps you’ve been made redundant, and have a large chunk of cash burning a hole in your pocket.

The great thing about using your own money to start up is you don’t have to go cap in hand to anyone else. Plus, there’s the added bonus of not starting out in debt, or giving away equity at an early stage.

There are other advantages too – if you want to pump more cash into the business later on, investors often like to see you’re committed to a venture enough to put your own financial weight behind it.

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.

Of course, there are 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.

Bank overdraft

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.

For example, NatWest offers a Business Overdraft for existing customers for up to 12 months, with interest payable only on the borrowed amount and no set minimum amount to repay each month.

However, rates of interest on bank overdrafts are usually charged above base rates, and in most cases the overdraft amount is repayable on demand.


There are literally thousands of different types of small business grants available.The hard part is finding them, and getting through the application process, which can be long and arduous.

However, if you or your business qualifies, they can provide the financial impetus your idea needs to either get off the ground, or grow into something bigger and better.

Community schemes

A plethora of Community Development Finance Institutions (CDFIs) have been set up around the country to help individuals, and businesses who find it difficult to access, or have been denied, credit from banks and lending companies.

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


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.

Business cash advance

Companies such as Worldpay and Liberis, for example, 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. Repayments will be scheduled at a pre-agreed percentage of every transaction – usually between 10 and 20%.

With a cash advance, you could secure up to £300,000 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, Liberis insists all clients must have been trading for four months or more, with a minimum monthly average of £2,500 in card takings and the ability to process credit and debit card transactions.

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.

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 offers personalised rates that don’t affect your credit score and it doesn’t charge early repayment fees.

Organic growth/Bootstrapping

Starting a consultancy from home? Got an idea for a website you can build and code yourself? There have been plenty of successful ventures over the years that started with no, or negligible amounts of cash.

This kind of funding method works well if you’re offering a product or service where you receive payment before you have to buy any stock or actually deliver the goods. The revenue received can then be used to plough back into growing the business.

It’s certainly the most risk averse way to start a business, and while it may not be the quickest route to a multi-million pound turnover, there’s nothing stopping you getting there eventually.

What are the next steps?

From reading this article, you’ve learned more about the different ways of funding your business, aside from those available from banks.

We’ve looked at other types of loans, such as those from family members, as well as short term finance options like using bank overdrafts.For more information on how to get funding for a business, visit our six sources of finance for a business.

Types of funding
Family loans
Bank overdraft
Community schemes
Business cash advance
Asset finance
Peer-to-peer loans
Organic growth/Bootstrapping

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