Startup Funding Options: How to Raise Money for Your Business (UK)

Funding is one of the biggest questions every startup faces — and there’s no single right answer. The best route depends on your business, your growth ambitions, and how much ownership you’re willing to give up. Here’s an overview of the main options.

Bootstrapping (self-funding)

Funding the business from your own savings and revenue. The big advantage: you keep full ownership and control, and you’re forced to stay lean and customer-focused. The limit is your own cash and how fast you can grow on it. Many great businesses are built this way — and even those that raise later often bootstrap first.

Grants

Non-repayable funding from government, Innovate UK, local growth hubs and various bodies — often tied to innovation, specific sectors or regions. Grants are attractive because you don’t give up equity or repay them, but they’re competitive, can be admin-heavy, and usually come with conditions on how the money is spent.

Loans

Debt you repay with interest, keeping your ownership intact:

The government-backed Start Up Loan scheme offers personal loans for new businesses, with mentoring
Bank loans and asset/invoice finance suit businesses with predictable revenue

Debt works well when you can service the repayments from cash flow — but it’s a fixed obligation regardless of how the business performs, so a realistic cash flow forecast is essential.

Equity investment

Selling a share of your company in exchange for investment:

Angel investors — individuals backing early-stage companies, often with useful experience
Venture capital — funds investing larger sums in high-growth businesses

Equity brings money you don’t repay and often valuable expertise — but you give up ownership and some control, so it’s a significant decision.

The tools that make equity easier

Two UK tools are central to raising equity:

SEIS and EIS — generous investor tax reliefs that make backing your startup far more attractive. Often the single biggest factor in filling an early round — see SEIS and EIS explained.
Convertible loan notes (CLNs) — a loan that converts to equity at the next round, letting you raise quickly without agreeing a valuation now. A popular bridge between rounds, though the terms need care.

And to reward the team you build with that money, EMI share options are the standard tax-efficient route.

Choosing the right route

A few questions to guide you:

How fast do you need to grow? High-growth often needs equity; steady growth may suit loans or grants.
How much ownership are you willing to give up? Watch dilution across future rounds, not just this one.
Can you service debt from realistic cash flow?
Do you qualify for grants, SEIS/EIS or the Start Up Loan scheme?

Most startups end up combining routes over time.

Raise on solid foundations

However you fund your startup, investors and lenders want credible numbers and a clean structure — and getting SEIS/EIS, your cap table and the paperwork right protects both you and your backers. Our accountants for startups help you prepare for funding, secure SEIS/EIS advance assurance, model your cap table, and build the financial forecasts funders expect — so you raise from a position of strength.

Frequently asked questions

What are the main ways to fund a startup?

The main routes are bootstrapping (self-funding from savings and revenue), grants, loans (including the government Start Up Loan scheme), and equity investment from angel investors or venture capital. Many startups combine several — for example bootstrapping early, then raising equity from angels using SEIS/EIS tax reliefs to attract them.

What is a convertible loan note?

A convertible loan note (CLN) is a loan to a startup that later converts into shares — usually at the next funding round, often at a discount. It lets a startup raise money quickly without agreeing a valuation upfront, deferring that to a later, larger round. It's a popular bridge between funding rounds, but the terms need careful drafting.

How do SEIS and EIS help with funding?

SEIS and EIS give investors generous Income Tax relief (50% and 30% respectively) plus other reliefs for backing qualifying early-stage companies. This makes investing far more attractive, so having SEIS/EIS status — and advance assurance from HMRC — significantly improves a startup's ability to raise equity from angels and other investors.

Should I take equity investment or a loan?

It depends on your business. Equity brings money you don't repay and often valuable expertise, but you give up ownership and control. Debt keeps your ownership but must be repaid with interest regardless of how the business performs. High-growth startups often need equity; steadier businesses may prefer loans or grants. Model the impact of each before deciding.

How much equity should I give away?

There's no fixed answer, but founders should be mindful of dilution — give away too much too early and you have little left for future rounds and your team's options. A sensible raise takes enough to hit the next milestone without over-diluting. Modelling your cap table across future rounds before you raise is essential.

Related services

Reviewed by Provense Accountants

Written and reviewed by our team of qualified accountants (AAT-regulated). This guide is general information, not personal tax advice — book a free consultation for advice on your situation.