Grants, startup loans and freebies: financial help for your business

So you’ve got your business idea in place – congratulations! You’re probably raring to get started in your exciting new venture – but before you get too giddy, it’s wise to be absolutely sure of where your startup funding is coming from.

Getting the right startup funding in place early can help you set up your company faster, and more securely – but where should you look and what are your options?

Here’s a quick run-through of some of the startup funding options available to you if you’re over 18 and live in the UK. Of course, many of these options are also available to you if you’ve already started your business and just looking for a financial boost to take your business on to the next level.

COVID-19 support

Before we get into the kind of grants, loans, and support available to small businesses and freelancers all year round, the government has made a number of support programs available in response to the 2020 COVID-19 pandemic. These include the Bounce Back Loan, the Job Retention Scheme, and the Self-Employment Income Support Scheme.

For all the details on the latest support available during the pandemic, please visit our COVID-19 Hub. Please consider bookmarking our Hub, too, as we regularly update it with all the latest developments.

Startup Loan

If you’re looking to start or grow a business, you might be eligible to apply for a government-backed personal loan via Start up Loans.

Applicants work on their business plan with a mentor before pitching to a panel for their loan. All owners or partners in a business can individually apply for up to £25,000 each, with a maximum of £100,000 available per business. The average loan is around £5,000, and needs to be paid back within five years. It’s unsecured too, so there’s no need to put forward any assets or guarantors to support an application.

If you’re successful, you also get 12 months of free mentoring and some exclusive business offers to help you along the way.

Venture Capital Schemes – Seed Enterprise Investment Scheme and Enterprise Investment Scheme

HMRC allow four different schemes that can help your company grow by offering tax reliefs to investors who buy and hold new shares, bonds, or assets for a specific period of time.  These are the Seed Enterprise Investment Scheme, the Enterprise Investment Scheme, Social Investment Tax Relief (STR) and Venture capital trusts (VCT).

The Seed Enterprise Investment Scheme (SEIS) allows business investors to claim generous tax reliefs on funding of up to £100,000 in a single year, making your company a far more attractive option for investment. To qualify your company must:

• have been trading for less than two years
• have no more than £200,000 in gross assets
• less than 25 employees
• not previously carried out a different trade

You will not qualify if you’ve already had investment through an  Enterprise Investment Scheme EIS or a  Venture capital trust (VCT).

The Enterprise Investment Scheme (EIS), is a similar scheme, but for larger companies, and those who want to raise more, up to £12 million. You can find out more about these schemes on the Gov.uk website.

The Prince’s Trust

The Prince’s Trust supports young people aged 18 to 30 who want to set up their own business. You can apply to get between £1000 to £5000 if you’re unemployed or working less than 16 hours a week. You can’t apply if you’re on your gap year, if you’ve graduated with an undergraduate degree less than six months ago, or if you have a postgraduate degree or professional qualification.

Local authority startup schemes

Local authorities also provide schemes aimed at startups in their area – you can search for schemes local to you using the government’s Business Finance and Support Finder.

Additionally, blue-chip companies offer funding across a variety of sectors. Better Business Finance could help you find the right financial support to meet your business needs; they also host nationwide events aimed at startups and small businesses.

New Enterprise Allowance

The New Enterprise Allowance (NEA) is a scheme designed to help the long-term unemployed back to work by helping them set up their own business. If you’ve got a feasible business plan, you might be entitled to a designated business mentor and a weekly allowance worth up to £1,274 over 26 weeks.

According to the government’s guidelines, to be eligible you need to be over 18 and receiving one of the following benefits:

• Jobseeker’s Allowance (or your partner does)
• Employment and Support Allowance (or your partner does)
• Income Support, if you’re a lone parent, or you’re sick or disabled.

You may also be eligible if you receive Universal Credit, including if you’re already self-employed.

Find out more about the New Enterprise Allowance in our handy article.

Crowdfunding

Rather than take a hefty loan from the government or a financial institution, crowdfunding allows ordinary members of the public to back your idea by pre-ordering a product, by purchasing equity in your company or contributing towards a low-cost loan.

If you’re looking to go the pre-order route, Kickstarter is one place to look. If you want to sell a stake in your company check out Crowdcube or Seedrs. If you want a crowd-powered loan, RateSetter is worth a look.

Many companies have used crowdfunding to enormous success, including these rather bizarre examples.

Traditional Bank Loans

The chances of a loan application for a startup being declined by a bank is notoriously high, especially since the financial crisis. That’s why if you’re hoping to get one, you need to be able to provide a clear, well thought out business plan explaining how you would use the money. This will also help you work out how much is a sensible amount to borrow. Having a good credit rating will also greatly increase your chances.

Of course, remember to shop around. Having existing accounts with a particular bank doesn’t mean you can’t explore the market.

If you need help putting a business plan together, check out our free guide – How to write a business plan, or check out our article on whether an unsecured or secured business loan would be better suited to your business.

Angel investment

This is basically the kind of investment that happens on Dragon’s Den. An ‘angel’ is not a supernatural being, rather a wealthy (but usually not super wealthy) investor, looking to get a higher return on their investment than they could in banks or property, for example.

Angels have deep pockets and will usually invest anywhere between £10,000 and £1 million. In return, they’ll expect a high return on their investment, usually expecting 2.5x their original investment. Although they may not ask for a huge amount of equity in the company, they’ll usually expect some say in key business decisions.

The problem with Angels is that they’re highly risk-averse. It will usually take them between three and six months of due diligence before they decide whether or not to invest, and they’re unlikely to make follow-up investments.

In terms of finding an Angel, they could be anyone, from a friend or nextdoor neighbour, to a serial entrepreneur found through the internet. Angels often invest through a network, as this gives them a greater pool of experience, which helps with due diligence. Some examples include Angels Den, AngelList and Angel Investors Network.

Venture capital investment

Venture capital is secured through venture capitalist (VC) firms, which are pools of income managed by a limited partnership or trust. Some examples include Founders Fund and ACCEL, members of which were early investors in Facebook.

The individuals who own these firms are some of the wealthiest people in the world, so there’s much more opportunity to get large amounts of funding – VCs tend to invest anywhere between £300,000 and £3 million on average, but have been known to fork out in excess of £20 million.

VC firms expect a lot for their money, however. They’ll expect rates of return between 38% and 48% a year, and will ask for a large chunk of equity to go with it. Be cautious that if you start giving over 50% equity to one party you risk losing control of your own company.

Although generally willing to take more risks than Angel investors, VCs will take often a painfully long time in scrutinising the ins and outs of your company before investing. Taking as long as a year in some cases, this can be an extremely frustrating process.

Borrowing from friends and family

Borrowing from friends and family is a very common way to start a business, be it a few hundred pounds for a laptop of tens, or thousands in exchange for a chunk of equity. Treat this in the same way you would treat any other approach to funding – even your loved ones won’t appreciate being taken for granted.

Prepare a business plan and make your case, specifying how long you need the money for and explain how their funds will be used to grow your company. You will need to convince them to invest in the same way you would for any other grant or loan. And it’s good practice to ensure you document the business agreement. It could save you an awkward conversation later on.

Regional funds

Most local authorities or sector-specific bodies now offer some kind of business development grants or support scheme. Everything from £5,000 for farmers and foresters to a freebie £250 for new businesses in the Merseyside area is up for grabs – check out the Gov.uk Finance Finder for schemes relevant to you.

Broadband

In 2018, the government announced a new nationwide Gigabit Broadband Voucher scheme (GBVS), backed by a £67m fund. The initiative aims to provide vouchers worth £3000 for businesses to connect to the latest, fastest broadband.

This replaces the old Connection Voucher Scheme launched by the coalition government in 2013. Funding was pulled back in 2015, but the new GBVS looks like it’s here to stay. Check out the gigabitvoucher.culture.gov.uk website for more information.

Need more help starting your business?

Starting a business doesn’t have to be over-complicated. This jargon-free guide will show you how, with a little groundwork, you can have your own business up and running in a few hours.

We’ll run you through the legal ins and outs of starting a business, explain your options for company structures, naming your company, and how to get registered with HMRC.

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