12-minute read
Getting funding for your business is a huge opportunity but sometimes it can be hard to know where to start and what type of funding you need.
Making the right call could have a positive impact on your business for years to come, so it’s important to know what funding options are available to you and how they work.
Whether you run a new or established business, growth is always likely to be front of mind.
Growth could be hiring more employees, launching a new product, or creating a new marketing campaign. To get to where you want to be, you’ll probably need some extra cash to invest.
This guide on raising money to grow your business has been created to help you work out which type of funding is suitable for you and the steps you can take to secure it.
Contents:
If you’re looking for money to start or grow your business, there are several different options to consider. Some types of funding you’ll need to pay back, others are given to you for free, some require you to give away a share in your business, and you can also use your own money.
Type of funding | Suitable for | Benefits | Considerations |
Business loan | All types of businesses | Access to short-term finance | Interest costs and time taken to pay back the loan |
Angel investment | Startups | Significant investment and business connections | Giving away a stake in your business |
Venture capital | Established businesses | Significant investment and business connections | Giving away a stake in your business |
Crowdfunding | All types of businesses | Diversity of investors and exposure for your business | High effort compared to other types of investment |
Business grants | All types of businesses | Money that you don’t have to pay back | Grants are limited and competitive |
Government schemes | All types of businesses | Investors can benefit from tax relief | There are limits on how much you can raise |
Reinvestment | Businesses making a healthy profit | No debt, retaining full ownership of the business | Making sure you don't overspend |
In the same way that you can take out a loan to support your personal finances, you can get a loan to help your business.
When you apply for a business loan, the provider will offer you:
You may also need to pay a fee and most lenders will have set criteria for their products, such as how old the business is and whether it’s registered in the UK.
To get this type of funding, you’ll need to be able to make a clear case for how it’s going to be used and how you plan to pay it back.
The flexibility and cash injection offered by bank loans means they’re popular with small businesses – almost a quarter (23 per cent) were seeking finance through a bank loan in 2023, according to Simply Business research.
However, there are different types of loan available so it’s important to consider:
If you’re having problems with cash flow and need money quickly, invoice financing is a short term option that allows you to sell unpaid invoices to a third party. They’ll lend you up to 95 per cent of the value of the invoices and chase payment themselves.
It’s a very quick way to access cash if you need it. However, it’s important to consider that the costs can add up over time and outsourcing chasing payments could damage relationships with your customers.
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Private equity is when an investor or groups of investors give you a cash injection for a stake in your business.
For example, a group of investors could give you £100,000 to help you buy new equipment in exchange for 20 per cent of your business. Private equity investors are also often able to help with business consultancy and connections.
When it comes to private equity investment, there are several options. Which one is suitable for you will depend on what stage your business is in and how much you’re looking to raise.
An angel investor, also known as a business angel, is an individual (or group of investors) looking to identify and invest in businesses with high growth potential.
Angel investors will usually be looking to invest up to £500,000 in startups in exchange for a stake in the business.
Venture capital (VC) funds are made up of investors and business experts. Venture capital firms raise money from private and institutional investors to invest in select companies.
VC funds are more likely to target established businesses and can offer larger sums of money.
Crowdfunding is a type of investment where a large number of people contribute smaller sums of money towards your business through an online platform.
Anyone can invest through crowdfunding sites and businesses can use different methods to raise money, such as giving away a stake in the business, loaning money at a set interest rate, or giving away rewards in exchange for cash.
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Whether you’re a startup or an established business, a grant could help take your business to the next level.
Grants are popular with business owners because they don’t have to give away a stake in their business or pay back the money they’ve been given.
However, due to these benefits, the awarding of grants is very competitive. Some grants are awarded to one business from thousands of applications, while others are only awarded after a long and detailed application process.
Business grants come in different sizes and can be given to businesses based on things like:
For example, Simply Business’s annual Business Boost grant awards £25,000 to one entrepreneur to start or grow their business. The winner is chosen by a panel of judges based on criteria such as whether the business has a positive social impact and a thought-out plan to use the money.
Read our comprehensive guide to small business grants for everything you need to know.
The government runs a range of schemes that can help you to raise money for your business.
Here’s an overview of the main options:
Reinvestment is putting the profits you make back into your business. The benefit of taking this approach is that you won’t have to give away any stake in the business, nor will you have any debt or interest to pay back.
Taking the reinvestment route gives you more control over your finances and your business. However, this approach could increase the time it takes to grow and to do it safely, you’ll need to keep a close eye on your profit margin.
Investing in your business can be key to future success in the long term. In many cases you’ll need some extra cash to help you grow.
Here are some of the most common things small businesses use funding and investment for:
If you need money quickly, it may be best to look into getting some debt funding, whether that’s a traditional business loan, invoice financing, peer to peer lending, or a bridging loan.
If you’re looking for a big sum of money, it could be better to seek investment. Going down this route is also useful if you’re looking for extra business support and contacts.
However, it’s important to remember that in most cases investors will want a stake in your business.
Merlie Calvert, CEO and Founder of Farillio, an award-winning tech startup in the business and legal services sector, explained: “Every time someone gives you money, you’re giving away a slice of the pie.
“And that’s OK in the beginning as you have a lot of pie to share, and you need the money. But as that pie gets eked away, so does your control and your ability to determine the future of your business.”
With this in mind, if you’re not keen on paying back an investment over time and don’t want to give up a stake of your business, your best option would be to look for a business grant or reinvesting your own profits.
You’ve reached the point where you think your business could benefit from some investment, but how do you get your brand and ideas in front of the right people?
First off, you can speak to other business owners in a similar position – they may have had investment or know some angel investors or venture capitalists.
The people or organisation you approach for money to grow your business will depend on the type of funding you’re looking for.
Here’s an overview of the main options:
When it comes to securing funding to grow your business, It’s also important to be an active networker. Attending in-person and online events can help you get in touch with the right people. As well as attending events specifically themed around investment, it could be worth going to general business events as you never know who you might meet.
Another thing to consider is your personal brand. Posting thought leadership content regularly on platforms like LinkedIn can help to make you more appealing to investors. On top of this, speaking and presenting at events can help to increase your profile and the chances of getting noticed by investors.
When you start speaking to the right people, you’ll need to make sure you have a solid vision of where your business is going and exactly what you’d do with any investment.
It’s likely you‘ll need to create a specific business plan for investors or lenders – download our free business plan template to get started.
Investors and banks will look at your business plan to make sure the funding they provide will help you – and offer a return on their investment.
Here are some things to consider when writing your business plan:
If you’re successful in getting investment, it could mean that you have new stakeholders in your business. Keeping stakeholders up to date with how the business is performing will be crucial.
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You might be an expert in your industry or trade, but to impress potential investors or to be awarded a grant, you may need to show a strong understanding of the business world.
This could include demonstrating you’ve done sufficient market research into your industry – such as predicting upcoming trends or gaps in the market.
It’s also important to know what your competitors are doing. You can impress investors or lenders with competitor research when you're applying for different funding opportunities.
Whether you’re meeting with potential investors, entering a competition, or applying for a loan, a strong pitch is essential for your success.
We have a whole guide on how to write an elevator pitch – but it all comes down to being prepared, confident, and understanding your audience (not your customers, but the specific people you’re pitching to).
To help simplify your messaging and make the most of your time, we recommend preparing a strong mission statement and vision statement – this will show why you do what you do and the goals you want to achieve with your funding.
For many businesses, raising money is their biggest obstacle to growth. A quarter of businesses (25 per cent) said a lack of funding or access to credit was a major concern, according to our 2023 SME Insights Report.
The same study found that over half (56 per cent) of businesses were seeking a bank loan or government grant.
More than a third (36 per cent) said they were seeking over £50,000, while 45 per cent said they’d need between £50,000 and £100,000 to take their business to the next level.
As well as the financial boost, getting a loan, investment, or grant could provide you with extra support when it comes to running your business.
Expert advice and useful contacts could help you to achieve your goals quicker.
Due to the risks that come with all types of small business funding, it’s important that you fully understand all the options and what you really need.
For example, business loans can come with high interest rates and long repayment terms. And if you get an unsecured loan, your personal assets (such as your home or car) could be seized if you get into financial difficulty.
Taking on a business loan that you’re struggling to pay back could also have a negative impact on your business credit score.
As for any type of investment in a business, the main risk is giving away ownership and control over how you operate. Investors could have demands that you don’t agree with and you could be pressured into making decisions.
And if your business is underperforming, it could be a stressful time. As well as being accountable to investors, you could be at risk of financial difficulty if they decide to cash out early.
This article is intended as a guide. Business finance can be complex so it’s important to speak to a professional if you’re not sure of anything before making any decisions.
Choosing the right type of funding for your small business will take time and it’s important not to make any rash decisions.
The type of funding you choose – whether it’s a loan, grant, or investment – is likely to have a big impact on the future of your business.
Although getting access to a large sum of money quickly could seem appealing, having to pay it back over a long period of time or giving up a portion of your business could be challenging.
Make sure you speak to other business owners before making a decision and get help from a business finance expert if you’re not sure of anything.
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Written by
Conor Shilling
Conor Shilling is a professional writer with over 10 years’ experience across the property, small business, and insurance sectors. A trained journalist, Conor’s previous experience includes writing for several leading online property trade publications. Conor has worked at Simply Business as a Copywriter for three years, specialising in the buy-to-let market, landlords, and small business finance.
We create this content for general information purposes and it should not be taken as advice. Always take professional advice. Read our full disclaimer
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