The top five ways to get money to start a business

If bootstrapping your startup isn’t an option, you’ll need to secure other funding to get your idea off the ground. 

Navigating the startup funding landscape isn’t easy, especially if you’re a first-time entrepreneur. There are lots of different options to explore, and choosing the best funding source will depend on everything from your personal network to the type of company you’re starting.

We’ve outlined the most popular ways to get money to start a business, from startup grants to angel investors. You’ll also hear from other startup founders to learn which route they decided to take.

1. Friends and family

The easiest way to secure funding for your startup is by reaching out to your friends and family. This type of funding has a lot of benefits:

• It’s less formal than other funding routes – it won’t always require an extensive business plan or demonstrable traction
• Your friends and family may lend funds at a lower interest rate or even interest free
• They may agree to a longer repayment period than traditional loans or a lower return on investment 
• There’s already a relationship built on mutual trust

If the idea of asking friends and family for money makes you uncomfortable, you’re not alone. But remember, you’re not asking for charity or a favour. You’re presenting a business opportunity, where you’ll be paying back a business loan (potentially with interest) or handing over shares to your business.

The Pitch finalists YesRef took this avenue to launch their app. The founders originally put cash into the business themselves and bootstrapped to develop their minimum viable product (MVP). Once they had some traction, the team turned to family and friends.

“We decided to do a raise and put a pitch deck together. In the end, we went with the three Fs: friends, family and fools as they say. It was people who understood what we were doing and had some spare cash that they could throw at the product. It was really good,” co-founder Ben Williamson remembers.

One thing to remember: Get it in writing

Friends and family rounds might be more informal, but that doesn’t mean zero paperwork.

Make sure you get all the details of the arrangement in writing, if you want to avoid confusion or even fallouts further down the line. Be crystal clear about the terms, including:

• How much money is being exchanged
• Whether it’s a gift, loan or investment
• If it’s a loan, the interest rate and expectations around repayment
• If it’s an investment, information about shares 

2. Startup business grants

Business grants are widely considered to be the next best option when funding a startup. You don’t need to worry about paying the money back or giving away any equity in your business.

There’s a huge range of startup and small business grants available, ranging from a few hundreds of pounds to the tens of thousands. 

Some grants are awarded to help a business start or grow, so it’s largely up to the founder to decide where the cash is spent (for example, you might invest it in product development, marketing or employees). Others are more specific, like technology grants which need to be spent on new software or online systems.

The government is the main source of grant funding and should be your first port of call. We’ve put together an extensive list of all the government-backed grants and startup support available, which is updated regularly – read it here.

One thing to remember: Check the eligibility 

Grant applications are time consuming. For example, Innovate UK’s Women in Innovation grant (which included Pitch alumni in last year’s winners) requires a written application, video pitch, interview and presentation as part of the process.

Double check your new business is fully eligible before you put the time in. Many grants will have eligibility criteria around:

• The size of business
• The sector you’re working in
• Where your business is based

Don’t forget to note down the closing date too – we’ve come across plenty of institutions that won’t accept an application even a minute late.

3. Angel investors

An angel investor is an individual who invests their own money in a business to help it grow. In exchange, they will get a minority stake (usually around 20%, though some investors may ask for close to 50%).

Most angel investors will have successfully run their own business or have extensive experience in leadership roles. As a result, they tend to provide a lot more than just funding: an angel investor can also offer mentoring, advice and useful contacts.

You can connect with angel investors through a number of channels, including pitching competitions and social media. Remember, angels are busy people, so have a well-rehearsed pitch prepared that clearly articulates the potential of your idea.

Afro hair care brand and Pitch finalists Afrocenchix connected with their first angel investors after reaching out on Twitter:

“We were working on Afrocenchix with no salary and realised we needed a cash injection. I was tutoring, contracting and generally side hustling to pay the bills and we were massively overstretched,” said co-founder Rachael Corson.

“We had our first advisory meeting with David McQueen (after a year of working to get his attention on Twitter) who encouraged us to raise investment and start on a basic pitch deck. David later invited us to join his Build Legacy group when it launched in 2018. Several of our angel investors came from this group.”

Long read: How Afrocenchix beat investment bias to raise £510k

One thing to remember: Prepare to build a relationship

Most angel investors will stay with a small business for at least five years, but it’s not uncommon for angels to stick around for nine or even 10 years.

It’s a long time to be working with one person, so it’s vital to choose the right investor and ensure that you’ll be able to work together productively. 

Look for:

• Complementary knowledge and skills that could help your business
• Shared values and ethos
• Aligned expectations around your company’s growth
• A strong network that you could benefit from

4. The Start Up Loan

Another startup funding route is to apply for a business loan. The government-backed Start Up Loan is one of the most accessible, which gives founders access to up to £25,000.

The Start Up Loan is designed to be used to start a new business or grow an existing one that has been trading for less than three years. You can read the full eligibility criteria here. 

Start Up Loans charge a fixed interest rate of 6% per year and you can repay the loan over a period of one to five years. In addition to the loan, you’ll also get support with writing business plans and cash flow forecasts, as well as access to free mentoring.

One thing to remember: You’re personally liable

Of course, we have to highlight that there’s always a significant risk when taking out a loan. 

The Start Up Loan is a personal loan that is used for business purposes. Even if your business ceases trading, you’re still personally liable for repaying the full loan amount. 

“It is a personal loan being used for business purposes, so I’d always recommend going as lean as you need to. The average amount is around £12,000 at the moment,” says Ollie Collard, founder and CEO of Enterprise Orchard.

“It’s a really great scheme and it’s not just about the finance, it’s about the added value from the support that comes with the scheme as well.”

5. Crowdfunding

Crowdfunding platforms like Kickstarter and Indiegogo can be a good source of funding if you’ve got a creative or innovative idea.

Kickstarter focuses on creative projects like art, comics, film, craft, games and publishing; Indiegogo specialises in innovative design and technology. 

These platforms allow startups to raise funding through a large number of people, who then receive a “reward” in return. You’ll need to read the fine print about what you can offer, as some platforms don’t allow equity or revenue shares.  

People who back your campaign can donate anything from £1 to £1,000 or more, so it’s a good idea to have different tiers of rewards for contributors. For example, our favourite board game cafe Chance & Counters secured their startup funds from Kickstarter, and offered the following rewards:

• Pledge £5 or more: Website credit
• Pledge £10 or more: Tote bag set + website credit
• Pledge £20 or more: One year’s standard membership + one free session + website credit
• Pledge £150 or more: Founder’s membership + backers’ launch party + website credit 
• Pledge £1,000 or more: Lifetime membership + always free entrance

If you’re interested in taking the crowdfunding route, make sure you have a specific project in mind. Your backers will need clear information about how their money is going to be spent, whether it’s to launch a new product, purchase equipment or open a premises.  

It also goes without saying that money won’t automatically trickle in when you launch – you’ll need to invest lots of time and effort to draw in a community of backers.

One thing to remember: Crowdfunding can be all or nothing

Kickstarter famously takes an all-or-nothing attitude to campaigns and doesn’t release any funds unless the project meets its goal. 

Its rationale is fairly sound – it ensures creators have enough money to do what they promised and aren’t expected to complete a project without the necessary funds. However, it does mean that your hard work could go to waste and you’ll have no funding to show at the end of a campaign.

On the other hand, Indiegogo lets you choose whether you want to run a fixed or flexible funding campaign. 

Flexible funding allows you to keep any amount of money raised, but it also means you’ll need to fulfil rewards to backers regardless of whether you hit your funding target. Before you choose this option, it’s crucial to make sure that a lower raise won’t leave you out of pocket. 

Want more information about raising funding for your new startup? Visit our dedicated investment hub or sign up to our newsletter for startup news, advice and interviews.