How to get funding for a startup or new business in the UK

Starting a new business in the UK is a significant financial commitment. According to researchers, the average UK startup spends £22,756 in its first year, covering everything from accounting and legal fees to staffing, utility bills, marketing, and production.

If you’re wondering how to get funding for a new business in the UK, you’re not alone. Securing startup capital is one of the biggest challenges facing entrepreneurs. According to the British Business Bank, there was a decline in SMEs’ use of external funding between 2023 and 2024, particularly in grants and bank loans.

Our guide provides an overview of the essentials you need to secure startup funding in 2025/26. You can use it as a checklist to define your funding needs, build a business plan, and create future applications.

Why funding is so important for startups

It’s no secret that the failure rate of startups is high, with the Telegraph reporting that within three years, 60% of new businesses will have failed, and 20% will go under in the first year.

Funding can provide a lifeline for startups, as cash flow and payroll management are among the primary reasons for startup failure.

Startup funding options available in the UK

There are several startup funding options available in the UK, ranging from bank loans and private investors to government grants for new business owners. Each has its advantages and disadvantages, and you should carefully consider each method to determine which one might work best for you.

1. Bank loans

Bank loans, start-up loans, and small business loans are common methods by which businesses get off the ground. In early 2025, SMEs received £4.6 billion in funding from high street banks.

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Bank loans involve the bank giving you a portion of money that you will then pay back with interest. You can apply for these types of loans at any high-street bank, such as HSBC, NatWest, Barclays, and Lloyds. Banks will often have fairly strict eligibility criteria, so you will need to ensure that you have all your financial records to hand (personal and business) alongside some kind of business plan.

2. Alternative business lenders

In addition to the banks, there are a number of alternative lenders that provide business finance to SMEs. These lenders have grown in popularity in recent years, with an estimated 30% of SME finance now provided by non-bank lenders.

Business owners looking for a faster, flexible alternative to a bank loan have several alternative business lenders to choose from. For example, iwoca offers unsecured business loans between £1,000 and £1 million, provides decisions within 24 hours and never charges early repayment fees.

3. Government grants and loans for new business owners

One of the most accessible sources of startup funding for UK entrepreneurs is grants for new businesses. These small business grants do not need to be repaid and can provide a financial boost in the crucial early stages.

The UK government offers numerous schemes designed to enhance productivity and promote diversity among SMEs across various industries and regions nationwide.

The government offers grants for new business owners, and government-backed business loans provide funding of £500 to £25,000 to help kickstart startups. These loans offer a fixed interest rate of 6% per year, repayable over a term of one to five years, with no application fees or early repayment fees.

4. Crowdfunding

Crowdfunding involves raising money for your startup from the general population, using online platforms like Republic Europe or Crowdcube (equity-based funding) to gain public interest and support for your business idea. This route involves extensive self-marketing and advertising to increase awareness of your business, attract donations, and reach your funding goal, so make sure you have a robust business plan and vision for the future.

5. Venture capital

Venture capital firms – private companies that provide funding for high-potential startup businesses in exchange for a percentage of ownership – can provide significant early-stage capital and strategic guidance to businesses that want to scale and grow quickly. Many companies, such as Deliveroo, Gymshark, Google, and Facebook, started out with venture capital funding.

6. Angel investors

An angel investor is an individual who invests their own funds in a business in exchange for a percentage stake. Think Dragon’s Den – a panel of experienced and tenured businesspeople who provide their own capital to ambitious entrepreneurs and enterprises.

7. Bootstrapping

Sometimes the simplest method is the best. The way everyone wants to build a business is with their own two hands and their own money from their own pockets. Depending on the needs of your business, you can do exactly that by using your own personal savings and reinvesting early profits back into the company. This approach often works best for service-based businesses that require minimal overhead or upfront capital.

8. Startup support schemes

Numerous UK startup support programmes across the country give you valuable education and mentorship for your startup business journey.

The King’s Trust Enterprise aims to educate, connect, and support young entrepreneurs aged 18 to 30 in launching their businesses through a range of virtual and in-person courses.

LEPs (Local Enterprise Partnerships), now available at the local council level, offer specific grants, support, and mentoring to new business owners and budding entrepreneurs. You can find a list of LEPs on the Business Board Network website.

You can also find industry-specific support programmes, such as the UK Space Agency Accelerator, which provides support for startups in the space sector through private investment and grants.

A step-by-step guide to acquiring startup funding

Startup funding isn’t difficult to acquire, but you’ll need significant preparation and everything in order before you begin. This includes having a business plan and knowing the type of funding that you wish to apply for.

1. Define your funding need and timeline

It’s essential to first take a closer look at what your business requires financially. Typically, businesses will require funding for any of the following:

• Research and development
• Prototype-building
• Purchasing raw materials, goods, and stock
• Operational expenses
• Marketing and promotion
• Licenses and insurance

Once you determine how much cash you need, what you’ll use it for, when you’ll need it, and how long it will last, you can then write a business plan.

2. Create a solid business plan

A solid business plan and financial forecast demonstrate to potential investors and loan providers that you’re serious about making your startup a reality. There are several notable points to cover in a business plan:

Executive summary and elevator pitch

Investors often have busy schedules, so they don’t have time to read every business proposal that lands on their desks. That’s why it is essential to write a brief yet captivating executive summary that draws investors in and encourages them to continue reading.

Introduce you and your business idea

Add a personal touch to your pitch by including an “About Me” section and introducing your business idea and its products or services.

Market understanding

To increase authenticity, let investors know that you’ve been thinking about your business’ place within the current market through market research and understanding, as well as knowledge of your customer base and competitor comparison.

Marketing strategy

Ensure you have a strong marketing strategy in place, clearly outlining where you will allocate capital and when targeted marketing campaigns will run, including key product launch dates.

Costs

Here, you should present the costs of creating or maintaining your goods and services, as you previously worked out in step one, providing a clear overview of what your startup needs financially to prospective investors.

Cash flow forecast

As you work on your business plan, take a moment to think about the profits you expect your business to make in its first year, along with your cash flow. It’s a great idea to also include your personal survival budget – the amount of money you’ll need each month to cover your living expenses. This type of forecasting will provide you with a clear picture of your financial situation and empower you to take control of your journey.

Back-up plan

Provide evidence that you have thought about what you would do in the event of unforeseen setbacks. This could include reorganising your business or potentially selling off assets to cover debt.

3. Choose the right type of funding

It’s crucial to choose the right funding for your business needs.

Suppose you’re running a new tech business and have a recently developed software solution. You may need the help of a venture capitalist or angel investor to mobilise and monetise your business quickly.

On the other hand, if you wanted to start a business creating handcrafted lamps and light fittings, you may only need a bank loan to cover the costs of raw materials and equipment.

Refer to the table below to determine which funding type best suits your business needs.

Tips for a successful funding application

Just as with any job application, tailor your CV and cover letter to the responsibilities and requirements of the role. Make every funding application unique and tailored to the potential investor you are requesting funding from.

This means that to fill out your business proposal, handcraft it personally to deliver the business plan in a way that connects with the funding provider.

AI tools can support your process, but your core proposal should be personal and credible, which means handcrafting it where possible

Here are some ways to ensure your funding application is as strong as possible.

Align with investor values

You should craft a business plan that directly aligns with the funder’s values, beliefs, and ethos. For example, this could be causes such as environmental protection, social impact, or diversity, equity and inclusion.

Consider your investors’ appetites, too. If you are applying for funding from a profit-driven investor, dedicate more time to the plan’s Cash Flow Forecast and emphasise the potential returns from your venture.

Research previous recipients

You can research previous recipients of grants or funding requests and analyse how they approached their business plan to secure funding from the same provider you are proposing to.

Use clear, concise English

Write with clarity so that your ideas, rationale, and USP are clearly communicated to the funder in a way that values their time.

Keep within expectations

It can damage your startup if you use exaggerated financial projections or unrealistic cost expectations. These can and will be pointed out by prospective funders, making you look unserious or dishonest and impacting your success in acquiring funding.

Taking the final funding steps with your startup

Securing startup funding in the is one of the most critical steps for new business owners in the UK. With a wide range of options – including grants for new business owners, business loans, angel investors, and crowdfunding – understanding how to get funding is key to building a strong foundation. By exploring various routes, preparing a solid business plan, and applying for grants, you can give your business the best chance of success in a competitive market.

If you’re a new founder who hasn’t formed a company yet, at 1st Formations, we have everything you need. Explore limited company formation, our registered office address service, and more.