13 ways to fund your business (without a bank loan)

A bank loan might be the obvious choice, but there are plenty of other ways to fund your business. Here’s what you need to know.

As many startups will tell you, getting a bank loan to expand your business can be tricky, especially if you don’t have much trading history.

Luckily, there are plenty of other options out there, and thousands of UK entrepreneurs are looking for alternative sources of finance to get their business going.

In this article, we’ll explore 13 popular alternative funding options – from crowdfunding and grants to angel investment and community schemes – to help you find the right fit for your business.

1. Personal savings

If you have cash sitting in your savings account, this is an easy way to give your business a head start without taking on debt. You won’t have to worry about interest payments or strict repayment schedules, allowing you to focus entirely on your business.

The pros and cons of using personal savings

As there’s no debt involved, you’ll have the freedom to start your business and build on it without the pressure of owing money. You can also retain full control over your business with no external investors to answer to, and the funds are readily available without needing to go through the time-consuming process of paperwork or approvals.

On the other hand, there’s the risk of losing your savings if your business doesn’t succeed, and the amount you have may not be enough to fund large-scale growth. Moreover, the emotional pressure of using your own money can be stressful, as the financial outcome is directly tied to your personal wealth.

2. Family loans

Another straightforward option is to ask family members or close friends for financial assistance. They may be more willing to help, and unlike a traditional bank loan, you might be able to negotiate more flexible terms, such as lower (or no) interest rates, or longer repayment periods.

The pros and cons of family loans

Agreeing on more generous terms with your friend or family member can help ease the financial burden on you, and you’ll likely have quicker access to funds with fewer restrictions or red tape involved. Moreover, family and friends will be much more invested in your success and genuinely want to see your business thrive.

However, money can complicate personal relationships, especially if your business faces financial difficulties, which could lead to tension or misunderstandings. There’s also the risk of resentment if there’s no formal agreement laid out, and the emotional pressure of not wanting to let them down can weigh heavily on you as you work to make your business succeed.

3. Investors

These are individuals or entities that provide capital to a business in exchange for ownership equity, debt or other financial returns. They also help businesses grow, expand, or launch by offering funds in areas like research and development (R&D), marketing or operational costs.

There are many different kinds of investors out there, but for small businesses and new startups, the main options are:

• Angel investors: individuals who invest their personal money into startups or early-stage businesses. In return, they often take an equity stake or convertible debt. Most angel investors also offer mentorship and advice.
• Venture capital (VC) firms: professional investment firms or individuals who invest large sums of money in a business, typically in exchange for equity. They usually target high-growth businesses with significant potential but also higher risks.

The pros and cons of investors

Investors can give your business the cash boost it needs to grow or get started without the stress of paying back loans. Plus, investors often bring valuable experience, advice, and networking opportunities that can help you avoid common mistakes and make the best decisions. They can also add credibility to your business, making it easier to attract more investment later on.

While investors can offer significant funding to your business, this often means giving up some control over your business, as equity gives them a say in key decision-making. This can lead to disagreements if your vision doesn’t match theirs, and as investors expect a return on investment (ROI), there’s pressure to grow quickly and hit financial targets. 

There’s also the risk of equity dilution, meaning the more investors you bring in, the less of your business you own, which can limit your influence over time.

4. Bank overdrafts

A bank overdraft allows a business to withdraw more money from its bank account than it currently has available, up to a set limit. The bank sets a maximum overdraft limit based on certain factors (such as the business’s financial health and credit history). From there, the business is expected to repay the overdraft as soon as possible, often with interest on the amount used.

The pros and cons of bank overdrafts

A bank overdraft gives you quick and easy access to funding, making it ideal for covering short-term cash flow issues or any unexpected expenses. It also offers flexibility as you only pay interest on the amount you’ve overdrawn, and as there’s no fixed repayment schedule, you can repay when it fits your cash flow.

But similar to a bank loan, business overdrafts often come with high interest rates on the amount you’ve overdrawn, which can mount up if not managed well. There may also be fees for using or exceeding your overdraft limit, and if not handled carefully, it can lead to a cycle of debt that’s hard to break.

5. Business grants

Business grants are funds provided by governments, foundations or other organisations to support businesses in specific industries, regions or sectors. Unlike a bank loan, grants don’t need to be repaid, making them a great option for businesses that need funding but don’t want to face the pressure of repayments.

The pros and cons of business grants

Aside from not having to pay the money back, grants are also useful for funding specific projects, such as launching a new product or expanding the business. Moreover, getting a grant can make your business look more credible, which could attract future investors or partners.

But like with most things, there’s a catch. For one, applying for grants can be time-consuming, as you’ll need to put together a lot of paperwork (including your business plan) and compete with other businesses. Also, grants are often only available for specific uses, so you might not have the same kind of flexibility you’d have with other types of funding.

6. Invoice finance

Invoice financing is a way for businesses to get quick cash by using their unpaid invoices as collateral. In other words, it’s a short-term funding option where a business sells its outstanding invoices to a lender at a discount, in exchange for immediate cash. The lender then collects payment from the business’s customer when the invoice is due.

There are two types of invoice financing – invoice factoring and invoice discounting. Invoice factoring involves the lender taking responsibility for collecting payments from customers. On the other hand, invoice discounting means the business retains responsibility for this, but still gets the cash upfront.

The pros and cons of invoice finance

Invoice financing provides quick access to cash without taking on any long-term debt, which can be a lifesaver if you need funds urgently. It’s especially helpful for managing cash flow gaps, particularly when your customers are slow to pay their invoices. Additionally, it doesn’t require long-term commitment, making it a flexible solution for businesses in need of quick cash.

The main downside is that the fees can be quite high, depending on the size of the invoice and the financing provider you choose. If you opt for invoice financing, your customers may be aware of the arrangement, which could affect your business relationships. Plus, even with financing, you may still be held responsible for the full invoice amount if the customer doesn’t pay, adding risk to the process.

7. Community schemes (CDFIs)

Community schemes, or Community Development Financial Institutions (CDFIs), specifically provide financial services to businesses and individuals in underserved communities. These institutions are focused on supporting local development, helping to create jobs, improving infrastructure and boosting economic growth in areas that might not be served by traditional banks or lenders.

The pros and cons of CDFIs

As well as offering capital to underserved communities and focusing on improving the local economy, CDFIs offer lower interest rates and longer repayment periods, making it easier for businesses to manage.

That said, CDFIs aren’t available everywhere as they’re usually smaller, so not all businesses can access them. They also have strict criteria to meet, like having a solid business plan or offering collateral. Additionally, the loan amounts are often smaller compared to traditional bank loans, which may not be enough to fund bigger projects.

8. Crowdfunding

Crowdfunding has become a popular means of funding for small businesses, with 2,514 UK companies securing equity crowdfunding between 2014 and 2024 across 4,254 funding rounds. Put simply, crowdfunding allows businesses to raise money from a large group of people, usually via online platforms like Kickstarter and Indiegogo, by offering rewards, equity or pre-selling products.

The pros and cons of crowdfunding

Crowdfunding provides access to capital without the need for traditional loans or investors, so it’s a good way for small businesses and startups that may struggle to secure funding through these methods. 

It also offers a good level of exposure and marketing opportunities, as running a crowdfunding campaign can help raise awareness and attract potential backers who validate your business idea. Plus, you can get flexible options for how to structure the funding, whether it’s through rewards, equity or donations.

That being said, crowdfunding takes a lot of time and effort, as you’ll need to create a compelling business pitch, promote the campaign and keep backers engaged. There’s no guarantee for success either, and if your idea ends up failing, it could hurt your reputation. 

Crowdfunding platforms also take a cut of the funds raised, and if you offer rewards or equity, managing a lot of backers can be tricky, as you’ll need to keep them updated and meet their expectations.

9. Business cash advance

A business cash advance – also called a merchant cash advance – is when a lender provides a lump sum payment for a portion of your future sales and revenue. These aren’t based on your credit score – rather, the strength of your business’s daily or monthly sales. The repayment amounts are typically flexible and are adjusted based on your sales volumes.

The pros and cons of business cash advances

Business cash advances are another good way to get quick access to cash. Repayments being based on sales means that they’re adjusted accordingly, helping to ease cash flow pressures. There’s also no collateral required, the approval process is much quicker as it isn’t based on your credit score, and there’s no fixed term for repayments.

On the flip side, business cash advances often come with high costs, as the interest rates and fees are usually much higher than traditional loans. The daily/weekly repayments can also eat into your cash flow if you experience a dip in sales. Moreover, it’s easy to fall into overborrowing as the repayments are tied to sales, so you might find yourself taking out more than your business can afford to repay.

10. Asset finance

Asset finance is a pretty broad category that covers lots of different types of lending. However, in most cases, businesses use this option to lease expensive equipment – such as vehicles, machinery or technology – and spread the cost over time. This option is ideal if you need essential gear to grow your business but don’t want to fork out on a huge amount upfront.

The pros and cons of asset finance

Asset finance lets you easily spread the cost of big purchases. Moreover, asset finance can be more accessible compared to traditional loans, especially if you don’t have much trading history or a strong credit score. It also gives you up-to-date equipment, depending on the agreement you have with the lender.

The main downside is that you don’t own the asset straight away, and in some cases, you might never own it unless you pay the final lump sum. Plus, if you factor in the interest and fees, you may find yourself paying more than if you’d bought the item outright. There’s also the risk of being tied into long contracts, which might not work in your favour if your business needs change or you no longer need the asset.

11. Peer-to-peer (P2P) lending

This is a way for businesses to borrow money directly from individual investors, without going through a traditional bank. It usually happens through online platforms that match up businesses with people who want to lend their money in exchange for interest. You apply on a P2P platform, your business gets assessed, and if approved, investors chip in to fund your loan. From there, you repay the loan (plus interest) over time, just like you would with a regular loan.

The pros and cons of P2P lending

The application process is usually quicker and more straightforward, with faster approval times. Many platforms also offer flexible terms and loan sizes, so you can tailor the loan to your business needs. Also, if you have a strong credit history, you might even find interest rates that are lower or more competitive than what a bank would offer.

Still, P2P lending isn’t without its downsides. If your credit score isn’t good, the interest rates can be much higher, making it a more expensive way to borrow. P2P platforms don’t always offer the same level of protection or support as traditional lenders, and you might come across extra fees (for example, arrangement or early repayment charges). You’re still taking on debt as well, so you’ll have to make sure your business can handle the repayments.

12. Bootstrapping

Put simply, this is when you fund your business using your own money, without relying on outside investors, loans or other forms of external funding. It’s all about building your business from the ground up with any resources you already have, such as personal finances (this can include using your own savings, which we’ve already covered), and investing any profits your business makes back into it.

The pros and cons of bootstrapping

The most obvious advantage of bootstrapping is that you maintain full control over your business, meaning you get to make all the decisions without having to meet expectations from investors or lenders. There’s also no debt to worry about as there are no repayments to make, and you’ll have more flexibility to change your business model without needing approval from anyone else.

However, there is still financial risk involved, as you risk losing out significantly if your business fails. Growth can also be slower as you might not have enough capital to scale quickly or invest in larger projects, and the limited funds mean it’ll be difficult to afford things like important equipment, hiring a team or marketing your business as effectively as you’d like. Moreover, managing both your personal and business finances can be stressful, especially when things get tight.

13. Business credit card

Much like a regular credit card, a business credit card allows you to borrow money up to a certain amount to make purchases. However, the main difference is that it’s specifically designed for business-related expenses, offers higher credit limits, and offers separate expense tracking and spending rewards. 

The pros and cons of credit cards

A business credit card gives you access to instant credit, helping you manage short-term cash flow needs or any unexpected expenses. They also keep your personal and business finances separate, which is useful for bookkeeping and tax filing. Many cards come with rewards and perks for spending (such as cashback and purchase protection), and using them responsibly can help build your business credit history.

On the other hand, business credit cards often come with high interest rates. Some charge extra fees (for example, annual fees, foreign transaction fees or late payment fees), while others may require a personal guarantee, meaning you’ll be fully responsible for the debt if your business is unable to pay. Having access to credit might also lead to the temptation to overspend, and the credit limits may not fully cover what your business needs.

Funding your business: best practices

Choosing the right funding option can make a big difference for your business’s success – whether you’re just starting out or looking to grow.  But with so many options out there, it’s important to know what works best for you. Here are some practices you should consider before making that all-important decision.

Figure out how much you need

First thing’s first, you’ll need to know exactly how much cash you need and what it’s for. For example, are you covering startup costs, trying to manage cash flow, or looking to expand? Knowing this will help you choose the right way to fund your business. Remember to be realistic about your needs and to account for any unexpected expenses that may come along the way.

Create a solid business plan

A good business plan is essential for attracting investors or lenders. Make sure your goals, financial forecasts, and how you plan to use the money are clear. It will also help you stay focused and give you something to measure your progress against as your business grows.

Need help? Check out our guide to writing a business plan for everything you need to know.

Mix up your funding sources

Don’t put all your eggs in one basket. Depending on what you need, you could consider a mix of funding options, like business loans, grants, investors or crowdfunding. A combination can help spread out the risk, and having multiple sources can offer more flexibility and help you take advantage of different benefits (such as lower rates or longer repayment terms).

Stay on top of your cash flow

Managing your cash flow is super important for maintaining a good profit margin. If you’re borrowing money or have funds from investors, you’ll need to make sure you can pay them back. Therefore, you should keep a close eye on your financial health to avoid any surprises. You should also use a good-quality accounting software to track your expenses, income and any upcoming payments or debts.

Seek professional advice

Before you commit to any funding options, consider talking to a financial advisor or accountant. They can help you figure out the best choice for your business and avoid mistakes down the road. Moreover, a good advisor can help you understand tax implications, legal considerations, and give you a better picture of your business’s financial health.

Summary: is it right for you?

Choosing the right funding option largely depends on your business’s specific needs and goals. 

Therefore, you should consider the purpose of the funding, how much risk you’re comfortable with, how quickly you need the money, how much control you want and what you can afford long-term.

Once you’ve determined this, you’ll have a better idea of which option makes the most sense for your business right now. It isn’t something you should jump into, so take your time, weigh the pros and cons and go with what matches your business’s mission and vision for the future.

Written By

Emily Clark Taking Payments Editor

As the Taking Payments Editor, Emily specialises in content around POS, merchant accounts, and accounting – helping SMEs understand the tools and services they need to take payments confidently and grow their businesses. She also holds an MSc in Digital Marketing and Analytics, giving her the knowledge and skills to create a diverse range of creative and technical content. With a genuine passion for helping small businesses grow, Emily is all about making complex topics accessible and creating content that can help make a difference.

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