Funding your small business start-up

There have never been so many opportunities for entrepreneurs to choose from when looking for funding to start their new business. If you are ready to turn your ideas, expertise, and passions into a business, the next step is to put together a business plan.

Business plans are important as they serve these two major purposes for would-be entrepreneurs:

  • your plan is a roadmap for your first two or three years of trading and it provides you with revenue goals and performance targets by which you can measure your success, and
  • if you are looking for external funding, your plan gives investors and/or lenders confidence that you have given sufficient thought to the viability and profitability of your enterprise.

In this article, we look at the funding options available to your new-start business. The good news is that there are many more options available to you now than simply approaching your bank manager for help.

Government start-up loan fund

Following the credit crunch which resulted from the financial crisis of 2008, banks became even more reticent to lend new-start businesses money. As a result, the Government formed the British Business Bank (BBB).

One of the major schemes created by the BBB was The Start Up Loans Company (TSULC). What this does is provide personal loans to entrepreneurs of up to £25,000 over one to five years with no set up fees, no early repayment fees, and a fixed interest rate of 6%pa.

Loans are unsecured meaning you do not have to risk your home or any other valuable asset you own. You must undergo a personal credit check which, if you score badly on, will disqualify you from funding, no matter how viable your business idea might be. As it is a standard personal loan, if your business fails, you are personally liable for repayment of the facility – the debt does not die with the limited company it helped to fund.

You can borrow up to £100,000 with TSULC to start your business if there are to be multiple shareholders (that is, four partners borrowing £25,000 each). TSULC is also available for businesses which are 24 months old or less, in addition to start-ups.

The scheme is managed by delivery partners. They organise and administer the provision of loans (and additional services like free mentoring) in specific regions across the UK. To check out who your local delivery partners are, click here for the list.

You can borrow the money to start almost any type of business – please click here to see the excluded business types.

The process can take up to four months from application to payment of the loan into your business account. This is public money so loan requests are subject to high degrees of checking and due diligence than loans arranged through private providers.

To start your application with TSULC, please click here.

Private sector lending

Unless you are willing to secure your home or another saleable asset against a start-up loan with a private sector lender like a bank, you are very unlikely to be able to access finance from these types of sources.

You may have more of a chance if you have a proven history of running successful business however this is no guarantee your loan request will be accepted.


Bootstrapping is a way of manipulating cash flow to raise funding. In other words, “how can I get money in faster and pay it out slower?”

How can you get money in faster? Let us say that you know who your first 10 customers are going to be. You also know how much you are going to charge them – for example, £5,000.

You ask for a deposit from each customer of £1,000. You’ve raised £10,000 to start your business. You can then use this £10,000 to lease cheap premises (preferably on an easy-in, easy-out basis). You might also be able to use some form of invoice factoring (where you receive money from a finance company when you raise your invoices) to raise cash but beware – most invoice financiers require goods or services to be 100% delivered to customer satisfaction prior to paying out.

You then approach your suppliers for the raw materials needed to fulfil your orders. If, on delivery of the raw materials, you then need 45 days to complete all 10 orders, you ask for 60 days’ credit terms.

On completion, you then deliver what you’ve sold to your customers and ask for the remaining money. A couple of weeks later, you pay your suppliers and you have the profit from ten jobs as your start-up capital minus your standard fixed costs (like rent, rates, utilities, telecoms, internet, and so on).

More and more entrepreneurs are bootstrapping but it does come with risks, specifically around your ability to deliver the finished product on time and your access to credit accounts from suppliers.

The TWP Accounting service is driven by good cash flow management. Cash flow is the lifeblood of all businesses. Using bootstrapping will require very careful handling of funds, something which the TWP team of advisors and accountants will be more than happy to help you with.

Credit card financing

Many famous businesses have been started using the available funding lines their founders had on personal credit cards.

The key is to make as many applications over a short space of time for credit card accounts in your personal name. Keep the accounts in good order – have a small balance on each one and make sure that you make the repayments on time.

Your creditworthiness builds by doing this so the likelihood is that your existing providers will then slowly increase your credit limit. And as your credit record improves, you apply for more new credit card accounts.

Once the sum of your available credit lines has reached or surpassed the cash you worked out that you needed in your business plan, then that is when you launch your new start-up.

Two big caveats:

  • Credit card funding is not cheap, and
  • Your personal creditworthiness could suffer severe damage if your business does not work out and you’re unable to settle your debts.

Crowdfunding (also known as cloudfunding)

Crowdfunding is a form of finance where a group of people, other companies, and sometimes government bodies invest in your new business. The members of this group will all pledge amounts to your company and the sum of all these pledges will have to meet or exceed the amount you have requested for your start-up. If you don’t get 100% funding, the money is returned to the would-be investors, in many cases.

These groups come together on crowdfunding sites. Often, the investors will not know each other and the group only forms because of a shared belief in you and your business idea.

You pitch your idea to these potential investors via the crowdfunding website. Your pitch will contain an abridged version of your business plan.

If it grabs a visitor’s attention, they will then normally agree to sign a non-disclosure agreement to read your full business plan. At that point, if they are still convinced and want to be a part of the action, they will then make their investment.

Crowdfunding is mainly offered to businesses with trading history. For example, the biggest business crowdfunder in the market, Funding Circle, will only accept businesses with 2 or more years’ accounts.

If this is a method you would like to try, the two biggest platforms in the start-up sector are Crowdfunder and Seedrs.

What does crowdfunding cost the entrepreneur? It works like this:

  • Either you raise finance for your company like a loan and make structured repayments with interest over an agreed period of time, or
  • You distribute a proportion of shares in your company (also called “equity”) to your investors and when you sell your business (or it goes for later rounds of funding), your investor gets their original stake back plus any profit in the increased value of the shares.

Worried about loss of control? Don’t be – crowdfunding platform campaigns do not give investors the right to sit on your board meetings nor do they give them what are called voting shares.

For many new entrepreneurs, one of the things they miss the most (and they are surprised that they miss it) is a “boss”. There’s no rule book for making your business successful and some new company owners want guidance and are prepared to sacrifice a degree of control to get it. If that sounds like you, then the next option may be the best.

Angel investors and venture capital

Both angel investors and venture capitalists invest money into new-start businesses. The main difference between them is that an angel investor is normally an individual putting in his or her own personal money in whereas a venture capital fund puts in other people’s and companies’ money.

Angel investors normally look to invest smaller sums of money than venture capital funds.

While some angel investors and venture capital funds will lend money to you like a bank, most of them are interested in taking a stake in your company (that is, owning some of the shares that the company has issued).

Many will want to take an active role in your business including having some say over how the finances of your company are handled. They may expect a seat on the board and may visit your company on regular occasions to ensure that the performance and revenue targets they have set you are being achieved.

Angel investors and venture capital funds put their money in with the view to an “exit” in three to five years. An “exit” could be the sale of a business to a competitor or a management buy out or buy in.

The “exit” is their main method of realising a return on their investment. That said, many angels and venture capital funds will also look to take dividends or a share of profit or turnover on a regular basis as one of their conditions of investment.

To find out more about angel investors, this is a good place to start. For bigger projects requiring venture capital, this is the home page of the British Private Equity and Venture Capital Association.


Not as widespread as they were a couple of decades ago, grants offer money to companies at start-up and even when they are not yet trading.

Grants tend to be distributed according to two main criteria:

  • relative low levels of affluence of a particular area, and
  • parts of the economy that the government (or local government) wishes to encourage growth in.

At the time of writing, there are 101 grant schemes across the UK for new starts and companies not yet trading. Click here to find out the one most suitable for you.

Friends and family

The Bank of Mum and Dad helps many people achieve their dream of putting down the deposit for a house. That same source of finance helps many new businesses get off the ground.

If you borrow money from family and friends to start your business, please bear in mind that having an agreement in place to make repayments is vital. The fact that you’re borrowing money from a loved one may put you under more pressure to perform than accessing funding from other sources.

Make absolutely sure that the business plan you have put together is achievable and realistic if you choose this funding route.

Start-up support from TWP Accounting

We’re always on hand to give you and your business support, whether you’re not trading just yet or have just set out on your business journey and opened up.

If you would like to talk with one of our team of qualified accountants on how to fund your start-up and how to put together a winning business plan, please call us today on 01932 704 700 or email your accounting partner at

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