Many UK businesses need outside capital at some point: to hire before revenue catches up, to buy equipment, or to smooth out the gaps between invoices and payments. In 2024, gross lending to UK small businesses exceeded £16 billion. But financing solutions go beyond traditional bank loans. There are government grants that don't need to be repaid, equity investors with different risk appetites, and payment providers that advance cash.

Below, we discuss the different financing options available to UK businesses, including how they work and how to determine which one is right for you—depending on your stage, sector, and how much ownership you intend to retain.

Highlights

• The UK offers a wide range of business financing options, from nonrepayable government grants to equity investment and revenue-based financing.

• The right financing type depends on your business stage, sector, how quickly you need capital, and how much ownership you're willing to give up.

• Some financing routes use your existing sales data to determine eligibility. This makes them accessible to businesses that don't fit traditional lending criteria.

What are the business financing solutions in the UK?

In the UK, financing solution options include bank loans, government aid, venture capital, financing through the company's partners or shareholders, crowdfunding, and payment providers that advance cash against your own sales data.

What government financing aids are available for UK businesses?

The UK government offers several financing schemes, many administered through the British Business Bank or delivered via accredited lenders. They're not always well-publicized, but the terms are often better than what you'd get commercially.

These schemes include:

• Innovate UK grants: Nonrepayable awards for businesses working on innovation in areas such as clean technology, life sciences, and advanced manufacturing. Grants typically cover up to 70% of project costs, depending on company size and project type, and they don't dilute equity or add debt. These grants are very competitive.

• Start Up Loans: Government-backed personal loans of up to £25,000, at a fixed 7.5% annual interest rate. They come with free mentoring and are designed for businesses under 60 months old.

• Growth Guarantee Scheme (GGS): Government-backed guarantees to lenders offering loans up to £2 million to UK small and medium-sized enterprises (SMEs). The guarantee reduces lender risk, which means businesses that might not qualify for a standard commercial loan sometimes can qualify through this route.

• R&D tax credits: Rather than providing upfront capital, these tax credits let qualifying companies claim back a portion of their research and development (R&D) expenditure from His Majesty's Revenue and Customs (HMRC). Under the merged R&D expenditure credit scheme, profitable companies can receive a 20% credit on qualifying R&D spend. It’s important to remember that this credit is liable to Corporation Tax.

How does financing through partners or shareholders work for UK businesses?

Bringing in capital from people who already have a relationship with your business is one of the more underused options. This can be particularly helpful for companies that aren't yet at a stage where external investors are realistic.

Financing through partners or shareholders can take the following forms:

• Director or founder loans: A director lends money to the company, which the company will pay back in the future. Interest is optional, and if interest is charged, it must be at an arm's-length rate and is taxable income to the director.

• Shareholder funding rounds: Existing investors are asked to put in more capital, often at a valuation that's already been established. These are less dilutive than bringing in new investors, and existing shareholders sometimes have pro-rata rights that make participation straightforward.

• Strategic partner investment: A supplier, distributor, or technology partner might invest in exchange for preferential terms, exclusivity, or access to your customer base. It works best when both parties have a clear commercial incentive beyond just the financial return.

The main risk with any of these routes is concentration. Relying heavily on a small number of people for capital, especially people who also have influence, can create dependency. It’s important that businesses think through all the options before committing.

What business financing options do UK banks offer?

Bank lending is still a leading source of external finance for UK businesses, though it's not always the easiest to access.

Here are the typical types of bank lending in the UK:

• Term loans: A lump sum repaid over a fixed period, typically one to ten years, with interest. They suit capital expenditure such as equipment, premises, and vehicles. Lenders will want to see trading history, cash flow projections, and often some form of collateral.

• Business overdrafts: A credit limit on your current account that you draw down as needed. Interest accrues only on what you use. Well-suited for managing short-term cash flow gaps rather than funding major investment.

• Asset finance: Loans or leases tied to specific assets such as machinery, vehicles, or technology, where the asset itself often serves as collateral. Finance leases and hire purchase agreements both fall under this umbrella, with different implications for ownership and accounting treatment.

• Invoice finance: The option to borrow against outstanding receivables, which is useful if you're invoicing clients on 60- or 90-day terms and can't wait. Factoring involves the lender collecting the debt directly, while invoice financing keeps that relationship with you.

UK banks generally move slowly compared with alternative lenders, but are a good option for companies that don’t want to dilute ownership through outside investment.

How does venture capital financing work for UK businesses?

Venture capital (VC) is equity financing. Investors take a stake in your company in exchange for capital, and they expect that stake to be worth much more when they eventually exit. VC suits high-growth companies where large outcomes are plausible. It's largely unavailable for businesses with modest growth trajectories, regardless of how successful they are.

The UK has a well-established VC ecosystem. Many VC deals involve negotiating a pre-money valuation, agreeing on the size of the round, and issuing new shares accordingly. Term sheets typically include provisions worth understanding before you sign.

These include:

• Liquidation preferences: Dictate who gets paid first in an exit.

• Anti-dilution clauses: Protect investors' ownership percentage if you raise at a lower valuation later.

• Pro-rata rights: Give investors the right to participate in future rounds.

• Board representation or observer rights: Give investors a formal role in governance.

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer tax relief to individual investors who buy new shares in a company, which makes backing UK companies materially more attractive for individual investors.

What is crowdfunding financing for UK businesses?

Crowdfunding raises capital from a large number of people, typically via an online platform. In the UK, the main models for businesses are equity crowdfunding, debt crowdfunding, and rewards-based crowdfunding.

• Equity crowdfunding: Platforms such as Crowdcube and Republic Europe (formerly Seedrs) let companies raise capital from retail and sophisticated investors in exchange for shares. Campaigns involve setting a target raise, pitching publicly on the platform, and running the round over several weeks. EIS and SEIS eligibility often applies, which helps attract investors. Many rounds use nominee structures, so individual investors hold shares through the platform rather than directly on your cap table.

• Debt crowdfunding: This works more like a bank loan, except the capital comes from multiple individual lenders who pool together through a platform. You repay with interest over a set period, it can move faster than a bank, and it doesn't dilute equity, though rates vary considerably based on your credit profile.

• Rewards-based crowdfunding: A common route for product-led startups. Platforms such as Kickstarter and Indiegogo allow companies to raise funds from individuals in exchange for rewards such as early access to products, exclusive discounts, or limited edition versions of the product.

Crowdfunding also has a marketing dimension that pure financing doesn't. A successful public raise demonstrates customer validation, generates press coverage, and can bring in investors who become genuine advocates for the business. The tradeoff is that your financials and business model become public during the campaign.

How does revenue-based financing work for UK businesses?

Revenue-based financing is a way for UK businesses to raise capital without giving up equity or taking on traditional fixed-debt repayments. Instead, repayments are tied directly to your company’s revenue.

A lender gives your business an upfront lump sum. In return, you agree to repay a fixed multiple of that amount (for example, 1.2–1.6x), but the repayments fluctuate based on your monthly revenue.

Paying a percentage of your monthly revenue means when revenue is high, you repay more, and when revenue dips, you repay less. This continues until you’ve repaid the agreed total.

Using a solution tied to your payment provider, such as Stripe Capital, allows you to repay automatically as a percentage of daily sales. This works particularly well for businesses with variable revenue. Because offers are based on sales history rather than projected cash flow, they reflect how the business actually performs.

How do you choose the right financing solution for your business?

Choosing a financing solution for your business comes down to your growth stage, your industry, how much control you’re willing to give up, and how fast you need the funds.

Here’s how to think about each factor:

• Stage: Bank loans can be difficult to get for early-stage companies with little or no revenue. Grant funding and crowdfunding are often geared toward new companies.

• Sector: Government grants and venture capital skew toward tech, life sciences, and green energy. Businesses in other sectors have fewer options in those channels.

• Control: Debt keeps your ownership intact; bank loans benefit businesses that want to maintain full ownership. VC funding is a good idea for businesses that don’t mind sharing control.

• Speed: Revenue-based financing can move in days and works well for businesses that need funds fast. Bank loans and VC rounds take weeks or months, and work well for businesses that aren’t in a rush.

How Stripe Capital can help

Stripe Capital offers revenue-based financing solutions to help your business access the funds it needs to grow.

Capital can help you:

• Access growth capital faster: Get approved for a loan or merchant cash advance in minutes—without the lengthy application process and collateral requirements of traditional bank loans.

• Match financing with your revenue: Capital’s revenue-based structure means you pay a fixed percentage of your daily sales, so payments scale with your business performance. If the amount that you pay through sales doesn’t meet the minimum due each payment period, Capital will automatically debit the remaining amount from your bank account at the end of the period.

• Expand with confidence: Fund growth initiatives such as marketing campaigns, new hires, inventory expansion, and more—without diluting your equity or personal assets.

• Use Stripe’s expertise: Capital provides custom financing solutions informed by Stripe’s deep expertise and payments data.

Learn more about how Stripe Capital can fuel your business growth, or get started today.