Funding your own start-up is always exciting, even in challenging times. First, you must secure the financing your business needs to reach its potential. So, where do you start? That depends on what type of business it is and what you want to achieve.

How to get started

When seeking funding for a start-up, you must begin by putting together a good business plan. It must show potential backers or lenders that your ideas are viable and fully costed.

Start by asking yourself the following basic questions:

  • What will your start-up and ongoing costs be?
  • Do you have this money already in place or will you need to borrow it?
  • How much money must the business make each week and each month to cover your personal and business costs?
  • Are you prepared to be out of pocket while you build your business?
  • How much will you charge for your products or services?

What is cash flow?

Cash flow measures the amount of cash that comes into and goes out of your business over a specified period of time.

  • Positive cash flow means more money is coming in than going out.
  • Negative cash flow means the opposite is happening.

In other words, cash flow affects the amount of money you have available to fund your daily operations. If you were to have negative cash flow for too long, the business would struggle because paying your bills and meeting your other financial commitments becomes too hard.

Your financing options

When starting a business, you may want to use your own money or funds from family and relatives. Later on, you could introduce other ways to manage cash flow, such as an overdraft facility. But remember to factor any borrowing costs into your business plan.


Bootstrapping is when an entrepreneur starts a business with little capital, relying on personal money other than outside investments. If you have the money, you can of course continue funding everything yourself. You won’t have to pay interest and will retain full control over the business. However, once your money is invested in the business, you won’t have access to it yourself as a contingency. So, make sure your business can get funds from other sources if you face cash flow issues.

Self-investment is sometimes done in the form of a loan. The director of a company could lend money to their own business and then take it out again later instead of wages. You may want to discuss this with your accountant first.

Asset finance

The usefulness of asset finance depends on the nature of your business. If you need vehicles or machinery, it could provide a solution. The asset can sometimes be used as collateral, which reduces the lender's risk.

Asset finance also avoids the need to acquire assets with cash. Instead, you can buy it over an agreed period of time to protect your cash flow. Other financing options of this type include contract leasing and hire purchase.

Business loans

When assessing your loan application, we typically require the following information:

  • Your application, including your business plan and cash flow forecast.
  • Your personal credit record.
  • Your experience.

We like to see that you have enough confidence in your venture to commit your own money to it. That way, you have a personal stake in its success.

You may need to provide security for the loan, such as: property, Directors' & Personal Guarantee.

We will want some form of oversight when providing start-up business loans, such as cash flow forecasts.

Grants and loans

There are many government financial support initiatives, including a start-up loan scheme offering up to £25,000. Depending on your business type or sector, you may be eligible.

The British Business Bank also provides start-up loans to UK small businesses.

Business grants are a non-repayable source of finance that can be awarded by the government or private organisations following application. However, grant applications can take time and contain extra fees or commitments. Also, the eligibility criteria may not align with your planned business direction. You may then need to shift your planned offering away from its original focus in order to qualify.

Third-party equity investors

Some business ideas may need a great deal of research and development. Software development, for example, or online services creation. This may require alternative finance or equity investment because this type of funding isn't typically suitable for banks.

Third-party equity funders offer investment in your business in exchange for a share. The upside is there’s no immediate interest payment and plenty of expert advice and support. But you will no longer fully own the business. And if you want to regain full control, the equity you’ve given up could be costly to buy back.

Depending on where you are in the business cycle, you could explore the following funding options:

  • Business angels.
  • Venture Capital firms (VCs).
  • Independent investors.

When financing a start-up, Angel networks and individual investors could support you with funding. They like to buy in early, but usually want more equity because of the higher risk. However, they are usually sophisticated investors with a passion for your sector and lots of useful experience.

VCs look for better-established businesses with the potential for higher, long-term growth. They offer significant funds to suitable businesses, along with mentorship and a network of contacts. But, you'll have to give up some control, and they could intervene if they don’t like the direction of the business.

Read our guide to Alternative sources of funding for more information.


Crowdfunding reverses traditional investment by asking large numbers of people to contribute smaller amounts. It is used to fund a wide range of start-ups, artistic projects and community ventures.

It can be easier to raise money because there are fewer obstacles for start-ups and the process takes months rather than years. But it's complex and you may wish to seek financial advice before proceeding.

It's also a very public way to raise funds. So, if your business is built on a secret, innovative idea, this is not the funding avenue for you.

Other third-party investment sources

These include peer-to-peer lending and peer-to-business lending. The principle is simple, third parties will front the cash through a fund or other investment vehicle in exchange for a return (though not necessarily equity).

Pros and cons of each lending option

Financing options



Financing options



You keep control of the business.


Could destabilise your personal finances.

Financing options

Friends and family financing


You will get good terms and usually minimal involvement.


If things don’t go well, it could affect your personal life.

Financing options

Business loans


You maintain ownership of the business.


You may need to provide business or personal collateral such as property.

Financing options

Asset finance


It can be easier to get than a business loan as the asset acts as it’s own collateral.


You’ll lose the asset if you fail to make payments.

Financing options

Third-party equity investment


Good for start-ups with high upfront costs. Access to advice from experienced investors.


You lose control of a share of your business and it’s often expensive to buy back.

Financing options



A lower entry bar for early-stage start-ups and self-validates a new idea.


It can be complex, it puts your business out in public and there’s also fees/commission to pay.

Factor in the cost of borrowing

When considering your funding options, it is crucial you understand what the return on any investment will be and how that will work for you when you account for borrowing costs. Make sure these are fed back into your business plan and that the plan is still workable.

Many start-up owners struggle to escape the day-to-day pressures of running a business and don’t think strategically about the impact of funding on their growth until the situation becomes urgent. But if you intend to make well informed decisions about the business, it’s vital to step back and take in the bigger picture from time to time.

Why cash flow matters

Cash flow is the lifeblood of every business. It means you can act when facing adverse conditions and provides the freedom to plan for the longer term. That is very important at a time when businesses everywhere face mounting challenges.

Keep an eye on your progress by monitoring your income and expenditure daily. You can then compare it to your original plan and produce more accurate forecasts. If a cash injection is required, you need to be aware of it at the earliest possible moment.

Any property given as security, which may include your home, may be repossessed if you do not keep up repayments on your mortgage or other debts secured on it.

All lending is subject to a satisfactory credit assessment.  Security may be required.

Overdrafts are repayable on demand.

Use our “Rate change calculator” to work out how a change in Bank Rate could affect your loan repayments.