Small business funding: What are your options?

Running a business often means finding the right balance between ambition and resources. While many small businesses start with personal savings or help from family, at some point most will consider outside funding. Whether it’s a loan, equity investment, or grant, the right funding can unlock opportunities that wouldn’t otherwise be affordable. 

Funding is usually sought to give your business a boost that can’t be managed through day-to-day cash flow. Some examples of where funding may be used are: 

• Expanding into new locations
• Acquiring another business
• Developing a new product or service
• Hiring staff or building your team
• Purchasing equipment or other assets
• Smoothing out cash flow gaps 

The three main types of funding

1.Debt Funding 

Borrowing money to repay over time. 

Pros: You keep full ownership. 

Cons: Regular repayments and often security required. Make sure you fully consider any personal guarantees. 

Examples of debt funding: 

• Term loans – a lump sum repaid with interest
• Invoice finance – borrow against unpaid invoices
• Asset finance – fund equipment or vehicles
• Merchant cash advance – borrow against and repay through future card sales
• Property finance – commercial mortgages, development, or bridging loans
• Government-backed loans – e.g. Start Up Loans (£25k + mentoring) or Recovery Loan Scheme
• Peer-to-peer lending – more of a last resort as usually more expensive 

2. Equity Investment 

Selling a share of your business in exchange for investment. 

Pros: No loan repayments; investors can bring their expertise, mentoring and networks to help you succeed. 

Cons: You give up part of your ownership. 

Sources of equity funding include: 

• Angel investors (early-stage backers)
• Venture capital funds (for scaling businesses)
• Equity crowdfunding (raising smaller amounts from many investors)
• Private equity (for more mature businesses) 

Tax incentives: 

• SEIS – 50% income tax relief for investors (for businesses trading < 2 years)
• EIS – 30% relief (for more established businesses, usually trading < 7-10 years)

These schemes can make your business more attractive to potential investors but are subject to further criteria needing to be met. 

3. Grants and Subsidies 

Free or subsidised funding for specific purposes. 

Pros: No repayment, no equity. 

Cons: Often competitive and restricted in use. 

Where to look: 

• Innovate UK – national innovation grants
• Heart of the South West Growth Hub – regional schemes and signposting
• South West Investment Fund – subsidised equity and debt Quick Examples
• Using debt to scale: Imagine you have £250k to invest, but a business you want to acquire costs £1m. By raising £750k in debt, you can complete the deal — and once the debt is repaid, you own the full £1m+ business.
• Using equity to grow: If you give away 10% of your company to fund a growth plan that doubles its value, your remaining 90% ends up being worth more than your original 100%. 

Funding isn’t right for everyone, but when used wisely it can be transformational. Whatever the route, having accurate and up-to-date financial information and forecasts will make your business more attractive to lenders and investors.

If you’d like to explore which funding options could be right for your business, our Corporate Finance team would be happy to meet and discuss this with you.