There have never been so many ways to finance your small business.

Lenders now have much more data available to them about the performance of the businesses they could lend, so they’re able to make better informed decisions much quicker. 

Add that to the bigger market provided by a growing number of small businesses, and it’s easy to understand why there’s such a range in funding options.

But with so much more choice, it’s easy to feel confused about what’s the right funding option for your business.

This guide compares them all, giving you a better idea of which financing suits you best.

1. Revenue-based finance

What is it?

Revenue based finance is an approach to funding that lends recoups any finance as a portion of future revenue. Lenders typically make decisions on whether to lend to small businesses by directly accessing their back-end tools (like Xero, Shopify), and look for a strong, low-risk case to invest. 


Standard terms: Uncapped offers between £10k-£5m within 24 hours


Why should I?

Revenue-based finance is a great way to invest in the things that predictably grow your business’s revenue. So if you know you can quickly make money back from investing in ads, inventory, or your team, it’s a really quick and easy way to get hold of the cash you need to make it happen. 


Revenue-based finance providers typically won’t ask for a personal guarantee, won’t ask for interest, and won’t take equity in your business either.

Why shouldn’t I?

If you’re not a business that runs online, it can be difficult to demonstrate a case for revenue-based finance providers to invest, because they’ll want a clear idea of your cash flow. 


Plus, if you plan to use the funds on something that takes longer to pay off (like R&D) or you’re not sure if it’s going to work out, then it might be best to look for another source of funding, because the lenders will be less interested in giving you the cash.

2. Small business loan

What is it?

A small business loan is the broad term used for all the different types of loans available to small businesses. So if you just thought you were looking for a simple small business loan, you’d probably benefit from being more specific! From term loans to working capital loans, there are so many loan products out there for small businesses, it’s hard to keep up.

There are so many different types of bank loan, but the traditional bank loan offers between £50,000 - £500,000 over 3-10 years.


Why should I?

Small business loans can be a very quick, effective way to secure capital for your business. With so many different options out there, there’s bound to be a loan that fits with your business’s goals.

Why shouldn’t I?

As you’d expect, small business loans come with a few strings attached. Depending on the type of loan you go for, lenders may want you to secure the loan against an asset, like your house. Plus, depending on how much your business wants to borrow, interest rates could quickly climb.

 

3. Your Own Savings

What is it?

Not sure we have to explain this one, but here we go anyway. Those savings in your personal bank account, you’d invest them into your business.

Standard terms

There are no standard terms. You decide how much to put in.

Why should I?

When you’re starting a business, sometimes you haven’t got much choice but to invest a bit of your own money to create that early prototype or pay for your office. It’s not ideal, but it gets you off ‘Go’ and it demonstrates to potential angel investors - if you plan to go that route - that you’re serious about building your company from the ground up.

Why shouldn’t I?

Spending your own money is fine if a) you have money to spend and b) it’s getting you to the next step. But it’s far from a long-term plan. Look for other funding sources as soon as you have a business plan in place with some early indications that your product will be a success.

4. Family and Friends

What is it?

Family and friends investment is - again - pretty self-explanatory. Your family and friends all chip in with funds to help you get your business off the ground.

Standard terms

You’re only limited by the generosity and wealth of your family and friends. 

Why should I?

Raising money from family and friends should be less stressful than raising from other lenders. You’re able to set your own terms, which are less likely to be as restrictive as the bank. That should help you figure out your initial concept and get the foundations down for growth.

Why shouldn’t I?

It can be difficult to ask your family and friends for funding more than once, and you probably can’t ask for very much. So it’s best to raise these funds as early as possible, if you want to go down this route.


5. Crowdfunding

What is it?

Crowdfunding gives away equity in exchange for business funds, but on a larger scale. Crowdfunding platforms bring together hundreds, sometimes thousands of investors who each take a small cut of equity in exchange for funding.

Standard terms

Crowdfunding platforms often charge a 2-5% fee on what you make.

Why should I?

Investors love it. Because there are more investors, with each investing less, each investor is more likely to qualify for tax benefits, like investment schemes. That means you can be more competitive in your equity offer. It’s also great marketing to be seen as a public-led brand. And what better way is there to turn someone into a superfan than letting them own a part of your business?

Why shouldn’t I?

Crowdfunding can take a long time. You’ll need to build and grow an audience, and then drive potential investors to invest every time you do a round. If you’re looking for a quick injection of capital to fuel customer acquisition or expansion, it’s probably not your best option.

 

6. Venture Debt Funding

What is it?

Venture debt financing is an increasingly popular alternative to equity financing that sees companies take a loan from an alternative lender or debt fund.

Standard terms

You have to pay interest rates, usually of 12%, as well as the cost of warrants, and a closing fee of about 1.5%. The debt term is often between two and five years.

Why should I?

Taking venture debt means you won’t need to give away more shares. If you’re in a growing business where you expect your valuation to climb, that can be a very, very valuable thing. It’s also one of the only options available to businesses that need a large tranche of funding.

Why shouldn’t I?

Issuing debt warrants means lenders are able to buy shares at an agreed price within a specified period of time. If your business is growing quickly, that means you could give away millions more by the time the warrant term is up. Plus, if you fail to meet financial targets, your loan may default and become immediately payable in full. Which is as scary as it sounds.

7. Incubators and Accelerators

What are they?

Incubators are programmes for start-ups that are just finding their feet, while accelerators are for start-ups that are looking to scale up. Although often these terms are used for the same thing. In a nutshell, they help you get your start-up off the ground.

Standard terms

They invest up to £100,000 in exchange for up to 10% of your business

Why should I?

If you’ve never launched a start-up before, these programmes help you understand what it takes to build one from scratch. The funding helps, but the biggest benefit is to be introduced to mentors and a network of other founders who can help you through your journey.

Why shouldn’t I?

The equity accelerators take in your start-up is the biggest reason not to. Sometimes it’s as high as 10%, and if you’ve got big plans to grow, that’s a really big chunk of your business to give away so early on. The investment stake is usually quite small too.

8. R&D grants

What is it?

R&D Grants are given by the government to businesses that are creating something innovative. It’s part of their programme for supporting sectors that have the most potential to grow, and they’re usually awarded in the form of a cash grant, or a tax rebate.

Standard terms

You may have to demonstrate the effectiveness of what you’ve built to come back for more funding.

Why should I?

Free money!

Why shouldn’t I?

It can take some work putting the application together, so if you don’t meet the criteria for grant allocation, it might not be worth applying.

9. Government Grants

What is it?

R&D Grants aren’t the only type of government funding you’ll have access to. There are a range of other types of grant you could be eligible for, such as for businesses that are located in certain areas, businesses that work on reducing climate change, and many more.

Standard terms

This list of grant definitions will come in handy.

Why should I?

Again, free money!

Why shouldn’t I?

You shouldn’t not do it. If you can find the right grant for your business, you should go for it. Your accountant may be able to help you out.

10. Angel Investment

What is it?

Angel investors give you capital in exchange for equity in your business. They’re often entrepreneurs in their own right, so can advise you on your journey as an entrepreneur.

Standard terms

Angel investor groups generally take between 20-50% ownership stake of early-stage companies in exchange for between £25,000 and £500,000.

Why should I?

Angel investment is popular for early stage businesses because it’s relatively easy to get a hold of. Investors are often encouraged to make an investment because of the tax benefits, and because they want to support small businesses they’re interested in - like theirs.

Why shouldn’t I?

Although angels only want a small cut in your business, you’ll often need to bring together a few of them to raise enough for your business. Organising that can be tricky. Plus, you’re giving away a lot of equity at an early stage in your journey, so be sure to find terms that are right for you.

11. Venture Capital

What is it?

Venture capital comes at a later stage than angel investment, and is used to help a company figure out how to quickly and take on a new market, or existing, larger competitors. It works best when you know your business model is a go, and you just need the cash to build out your team, your product, and your marketing efforts.

Standard terms

Too varied to summarise here, Sifted do a good round-up of what the average VC term sheet looks like in Europe here, and Y Combinator do a good US term sheet here.

Why should I?

Building a business is expensive. And sometimes you need a lot of money, all at once. When you’re in a field where every other business around you is doing the same, that’s especially the case.

Why shouldn’t I?

Over the past twenty years, venture capital has been the go-to funding method for high-growth businesses. As its popularity continues to grow, so does resistance to getting funded with venture capital. The terms of deals are often punishing for young businesses, and it can take between six months and a year to raise a round. Ouch.

12. Growth Equity

What is it?

Growth equity, otherwise known as growth capital, is financing that late-stage companies use to grow their business. Like venture capital it’s often used to grow the team and invest in building the product out, but it’s also commonly used to fund acquisitions and offer liquidity to existing shareholders.

Standard terms

See our growth capital explainer.

Why should I?

Private equity is a helpful way to get a firmer grip on your market. So if you’re late to some new opportunities that a few start-ups in your space have already jumped on, private equity can help you join the party. The same goes for international expansion. For many businesses, it’s the next stage after venture capital.

Why shouldn’t I?

Private equity isn’t really for small businesses. We’ve included it on this guide because, well, every other financing option is here, so it’s handy as a comparison. From all the investment options that involve giving away equity, as a small business you’re more likely to opt for angel investment, venture capital investment or crowdfunding.

13. Merchant Cash Advance

What is it?

A merchant cash advance is a type of financing which gives businesses an advance which they pay back as a portion of future revenue. It’s most popular in the hospitality and restaurant industries. 

Standard terms

Merchant cash advance providers advance clients up to 6 month’s credit and debit card turnover ranging between £5,000 and £500,000.


To pay the loan back, lenders deduct around 15% every day from your credit and debit card receipts. 

Why should I?

If you’re a small business it makes sense to take an advance, particularly if you’re affected by seasonality. The advance can help you buy inventory, fund ads and build your team. So if your revenue growth is in any way predictable, this a great, short-term way to amp up cash flow.

Why shouldn’t I?

Merchant cash advances may not be for you if your business doesn’t have a predictable source of income. Financing against future sales can get expensive too, with some merchant cash advances charging a fee of up to 30%, that you pay off on future sales.

14. Invoice Factoring

What is it?

Invoice factoring is a financing approach used by some businesses to get their invoices paid early. When an invoice comes in, it’s automatically sent to an invoice factorer who releases about 90% of the value of the invoice, and charges a fee for the service. This means you don’t have to wait up to 60 days - or more - to get paid.

Standard terms

Typically between 0.5-5% of the invoice’s value, with discounts applied for larger invoices.

Why should I?

The main benefit to small businesses is that they get access to cash that keeps their cash flow healthy, and means they can very quickly reinvest their profits back into their business - and make more.

Why shouldn’t I?

The fees can be high and can eat into your profit, so if you’ve got tight margins, this may not be the financing option for you. Additionally, the factorer will still approach you for any invoices that aren’t paid.

15. Start-up Loans

What is it?

Many banks and other finance providers offer start-up loans to small businesses that were recently formed. These are like small business loans, but they’re easier to get funding with, and the terms are a bit tougher.

Standard terms

Pay back a 6% fee on a loan of £500 to £25,000 between 1-5 years.

Why should I?

Start-up loans can be really handy. You don’t need to spend an age raising funds, and many lenders have dropped minimum turnover requirements and won’t ask for a trading history. 

Why shouldn’t I?

You’ll need to offer some collateral to secure the loan against, so you’ll want to be pretty sure that you can pay it back! The APR on these loans are typically more expensive than small business loans too, so in the end you’ll pay more.

16. Short-term Loan

What is it?

Short-term loans are used to cover funds for a short period of time, often between three months and a year. These include a number of different types of loan included in this guide, such as credit cards or overdrafts, but you’ll also be able to get one from the bank or another finance provider.

Standard terms

Similar to a start-up loan, but you’ll need more trading history.

Why should I?

Short-term loans are quick and easy to get a hold of.

Why shouldn’t I?

Lots of small businesses tend to avoid short-term loans because the interest can be really high. They’re often seen as a last resort, and you could be personally liable for recovering funds if your business is unable to pay them back.

17. VAT Loans

What is it?

A VAT loan sees small businesses call on a finance provider to pay their VAT bill to HMRC on their behalf. They’ll then pay back the bill over the next 3-6 months, though repayment windows can vary.

Standard terms

Usually over a three-month period, and rates of 1.25%-1.5% are typical.

Why should I?

VAT loans are generally cheaper than small business loans, and span the same sort of timeframe, so they’re a handy stand-in.

Why shouldn’t I?

Although they’re cheaper than short-term loans, they’re still pretty expensive, and come with many of the same clauses around giving personal guarantees...

18. Credit Cards

What is it?

When entrepreneurs open a bank account, they’ll often be given a business credit card with a low limit. The business can use that credit to fund purchases they wouldn’t be able to make otherwise.

Standard terms

If you max out lending (usually the roof is at about £1,200) you could pay between 20%-50% APR in interest.

Why should I?

Credit cards are fairly low risk. Of course, you’ve got to pay them back, but the repayment rates are low and it’s unlikely that you’ll go more than $2,500 in debt.

Why shouldn’t I?

The other side of the coin is that you won’t be able to borrow much more than $2,500 before you’ll be looking for another source of funding again. Although credit cards can give your business a quick boost or a little bridge, they’re hardly a long-term solution. 


19. Overdraft 

What is it?

Overdrafts are often used by ecommerce and SaaS providers once they have six months of figures.

Standard terms

Your overdraft will probably be capped at between 1.5 and 2 months’ turnover and, unless yours is a multi-million pound company, you probably won’t get more than £25,000.

Why should I?

Overdrafts are really handy. Though you shouldn’t rely on them too much, because they only offer a shallow safety net. On the other hand,  it’s really helpful to be able to dip under your bottom line every once in a while.

Why shouldn’t I?

Although they’re useful, overdrafts aren’t a great way to fund your business. You won’t be able to get more than one from the same provider, the bank can choose when to withdraw the facility, and it’s difficult to get more than $25,000.

20. Export Finance

What is it?

Export finance is another way for businesses to free up cash flow, this time by releasing funds from overseas transactions. Instead of waiting for these invoices to be paid, the capital is paid as an advance, with a small fee.

Standard terms

They’re usually between 1.25% and 3% per 30 days​​.

Why should I?

If you sell overseas, there can be a long period between releasing the invoice and releasing the invoice. Getting the invoice paid up-front helps ease cash flow by making your business less dependent on being paid on time.

Why shouldn’t I?

In most cases you’ll need to work with large volumes before a finance provider would consider working with you. However, smaller traders have started to offer more flexible terms with export finance to reach a broader, underserved market.

21. Peer to Peer Finance

What is it?

Peer-to-peer lending does exactly what it says on the tin. Hosted by an online service, business owners get loans from other individuals. Interest rates are typically better for the lender and the borrower than banks or traditional lenders.

Standard terms

You’ll usually pay a fee of up to 6%.

Why should I?

Getting a peer-to-peer loan is a fast way to get funding, and borrowers get access to better rates than those offered by traditional lenders.

Why shouldn’t I?

The P2P sector also took a hit during the Covid pandemic, and many providers are much more cautious about the loans they approve on their platform. A strong track record in business and a squeaky clean borrowing history are needed more than ever.

22. Business Finance for Women 

What is it?

Some financial institutions offer business finance specifically for female entrepreneurs. These are usually government backed to encourage more female founders to set up their own company.

Standard terms

It can vary from being almost free to being basically the same price as a standard loan.

Why should I?

When you’re starting out and you don’t have much of a track record, it’s not easy to convince the bank to give you a fair rate on a loan. By lowering the bar to access finance, these lenders help kickstart women's role in entrepreneurship. Successful applicants may also receive business advice as part of the deal.

Why shouldn’t I?

These programmes can be bureaucratic, so it can take a long time for a decision to be made on your application for funding.

23. Asset-based lending

What is it?

Asset-based lending helps companies improve cash flow by securing loans against the value of machinery, property or other assets owned by the business.

Standard terms

It’s a bit complicated, and there are several fees involved. This article does a good job of breaking those fees down.

Why should I?

It’s difficult to get a loan without securing it against an asset, whether that’s your own home, inventory or equipment your business has bought. Of course, the more you’re able to provide as an asset, the more funds you’ll have access to.

Why shouldn’t I?

Ten years ago you’d struggle to find a way to fund your business that didn’t involve offering a personal guarantee as a security. Now there are many more funding options available, and not all of them require business owners to put their assets on the line.

24. Microloan

What is it?

Microloans are small loans that individuals offer, rather than banks. Standard terms are between 6% and 30%, depending on the borrower’s level of risk.

Why should I?

If you’re looking for a small injection of capital to help get your business off the ground, a microloan might be the best way to do it. Because you’re bypassing traditional lenders, you’ll get access to better rates.

Why shouldn’t I?

Microloans have dipped in popularity since the Covid pandemic, mostly because the Peer-to-Peer platforms that host them are increasingly cautious about the type of business they’re prepared to lend to. Lenders are also looking to recover their investment as quickly as possible.

25. Cash flow loan

What is it?

Similar to revenue-based financing, a cash flow loan gives businesses access to funds based on their business performance. The loan helps businesses improve their cash flow and invest in activities that drive short-term growth.

Standard terms

They’re usually between 5-15%, with additional fees if your repayments are late. However, lots of lenders choose to label their services as a cash flow loan, so be sure to compare apples with apples. 

Why should I?

Cash flow loans are a great way for businesses to get quick access to the capital they need to grow. Unlike traditional loans, it’s uncommon that you’ll need to secure the loan against your own assets too.

Why shouldn’t I?

You’ll need to put together a strong case for growth, which often means giving the lender access to the back-end of your financial systems. This gets more complicated when you don’t take payments online, so many lenders will only work with software or ecommerce businesses.

26. Supplier credit

What is it?

Supplier credit gives businesses access to goods and services without requiring them to pay for these immediately. Instead, the supplier offers the buyer a line of credit.

Standard terms

There are lots of different forms of supplier credit, some of them already covered in this article. See here for terms across the complete range.

Why should I?

Supplier credit gives customers the option to earn from the items they’ve bought before they’ve paid from them, which means they can be more agile, and more resilient to supply chain disruptions.

Why shouldn’t I?

It’s often hard for start-ups to get access to supplier credits, because suppliers will want assurances that the buyer will be able to pay them back quickly and reliably. Plus, businesses that miss repayments will face expensive debts.

So, how should you finance your small business?

The best and only way to answer this question is: “however you can”. Different businesses will have different levels of access to capital, based on their industry, years trading, business performance, and appetite for risk, and any low-cost, low-risk funding option would be a good result.

Having said that, it’s worth taking your time to understand the different funding providers within each category too. The terms in this guide give an outline of what you can expect, and these can vary significantly between providers.


At Uncapped, we offer investment capital with offers ranging from £10k to £5m through a revenue share agreement similar to a merchant cash advance. See if you qualify