Funding for small business – what can I get?

Now that you’ve done the groundwork, it’s time to think about the type of funding you want for your business. Here’s a quick overview of the funding for small businesses you can get.

Business loans

A business loan is a cash injection to your business that you’ll have to pay back. It can come from a bank or through government funding. There are a whole range of different types of business loans – from loans specifically for startups and new businesses to ones for more established businesses.

When you take out a business loan to get funding for your business, you’ll pay it back with interest. Your interest rate will depend on a variety of factors and will be higher if your lender considers your business more of a risk.

Bear in mind that interest rates are particularly high at the moment, making it an expensive time to borrow money.

If you’re confident in your ability to pay back a loan, we’ve listed seven of the best business loans in the UK for you to choose from.

Small business grants

Unlike a loan, you won’t need to pay back a business grant. Because of this, the eligibility criteria for business grants tend to be more specific than those for business loans. But if you can identify what makes your business different, it can be a highly valuable opportunity for businesses in need of a cash boost.

Business grants are often industry specific or support businesses focused on important causes such as diversity, sustainability, or innovation – so it’s important to apply for a grant that aligns with your values as a business.

Check out our guide to small business grants if you’re looking for some inspiration of where (and how) to apply.

Business investors

Investments are when people see the potential of your business and provide you with additional funding – usually in return for a share in your business. This means that they’ll continue to see a return on their investment if your business does well.

Investors can come from a variety of places – including venture capital firms and angel investors.

If you’re interested in gaining this type of business funding, we have a guide on finding investors for your business.

Business line of credit

A business line of credit is a more flexible type of loan and works similarly to a credit card. You can borrow money up to an agreed amount and withdraw parts of the total amount as and when you need it. You’ll only pay interest on the amount you withdraw, rather than the total amount in your line of credit.

Your line of credit can be secured or unsecured:

• a secured line of credit will provide you with a larger amount of funding but you’ll have to provide collateral in return (collateral is an asset used for security when borrowing money – you’ll lose your collateral if you fail to repay)

• an unsecured line of credit doesn’t require collateral but will offer less funding – and potentially higher interest rates

Business line of credit vs business bank loan

What makes a business line of credit different from a bank loan is it’s typically used for smaller amounts of money. With a loan, you’ll receive a larger amount of money but have to pay it back over regularly scheduled payments.

A business line of credit will typically give you a smaller amount of money, but you only withdraw funds from it – and pay interest – when you use it, giving you much more flexibility.

Peer to peer lending

Though not as traditional as some of the other business funding options we’ve discussed, peer to peer lending is another way you can secure additional funds for your business.

Most similar to a loan, peer to peer lending uses online marketplaces to match you with potential investors. If an investor likes your profile, they can choose to invest in your business. You then pay interest on these investments which goes back to the loaner.

Check out our guide on peer to peer lending to learn more.

Crowdfunding

Another business funding opportunity in the digital age is crowdfunding. Instead of targeting just one potential investor or lender, crowdfunding lets you request smaller amounts of money from multiple people.

Sometimes these are donations and sometimes your investors will gain a stake in your business. To learn more about the different types of crowdfunding available to your small business, read our guide.