Every founder we speak to asks the same question: “What kind of funding should I take?” The honest answer is “it depends”, but the framework below is what we explain when there is time.
0. Bootstrapping
Funding yourself from revenue and savings. Best for: founders with a proven offer who want full control. Worst for: capital-intensive businesses where waiting kills the opportunity. Pros: no dilution, no interest, no governance overhead. Cons: slow, exhausting, and you carry all the risk.
1. Grants
Free money. The main UK sources are Innovate UK (R&D-led), local Growth Hubs, the Prince’s Trust, regional development funds and sector-specific programmes (creative, agri, manufacturing). Pros: non-dilutive, no repayment. Cons: applications take weeks, success rate is single-digit, criteria are narrow. Use gov.uk Business Support Finder before applying anywhere else.
2. Start Up Loans (British Business Bank)
Government-backed personal loans up to £25,000 at 6% fixed, plus 12 months of free mentoring. You apply as an individual but use the money for the business. Pros: cheap, mentor support, accepts founders banks would reject. Cons: personal liability — you owe it even if the company fails.
3. Working-capital loans (us and similar lenders)
Short-term unsecured business loans to the limited company. Best for: bridging a known cash gap (a big invoice you know is coming, restocking before peak season, replacing a tool that broke). Pros: fast, no personal guarantee with us, fixed cost. Cons: short term — you must be able to repay quickly.
4. Asset finance
Lease or hire-purchase for vehicles, equipment, machinery. Best for: an asset that generates revenue immediately. Pros: spreads the cost, often more tax-efficient than buying outright. Cons: the asset is collateral; default means repossession.
5. Invoice finance
Borrow against unpaid invoices. Best for: B2B businesses with long invoice terms. Pros: scales with the business, unlocks trapped cash. Cons: fees stack, and some providers contact your customers (factoring) which can affect your relationship.
6. Bank overdraft / SME term loans
Traditional bank lending. Best for: businesses with 2+ years of trading history and a strong relationship with the bank. Pros: usually cheapest. Cons: slow, paperwork-heavy, often requires personal guarantees (PGs) which we deliberately do not.
7. Equity — angels and VC
Selling a share of the company. Best for: high-growth, capital-intensive businesses with a credible path to a £10m+ exit. Pros: no repayment, brings expertise. Cons: heavy dilution, loss of control, board overhead, expectation of exit timelines that may not fit your goals.
The honest summary
Most UK micro-businesses do best on a mix: a Start Up Loan to launch, bootstrapping for the next 18 months, and short-term working-capital loans (us) for specific gaps. Equity is right for a small minority of founders; for the rest it is a tool that looks attractive at the moment of taking it and expensive forever after.
