Complete guide to raising capital: 7 business funding options for startups

Just started a new UK business? The one thing that all startups need is capital, to cover those initial overheads and get things up and running.

You might need to rent premises, hire staff, buy raw materials or take out business insurance. All of these cost money, so you’ll need to start thinking about business funding options.

In this essential guide, we’ll show you how to raise capital with a run-through of some of the best funding options for UK startups. This includes crowdfunding, angel investors, government grants and venture capital seed funding.

And while you’re exploring financial options for your startup, make sure to check out the Wise Business account. It’s ideal for companies of all sizes, especially if you have big ambitions to one day go global.

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Business funding options for UK startups

Early-stage businesses can choose from a number of different funding options, or even combine multiple methods to raise as much capital as possible.

These include:

1. Bootstrapping
2. Friends and family
3. Crowdfunding
4. Angel investors
5. Venture capital
6. Government grants
7. Business loans and lines of credit.

We’ll look at these options in detail below, along with the main pros and cons for each.

1: Bootstrapping

Bootstrapping or self-funding involves using your own personal savings or business revenue to fund your startup.

It's a popular choice for startups wanting to retain full control, rather than having to give away equity to investors. For some new companies, it’s the only available option if other sources of funding are proving hard to come by.

Pros:

• Full ownership and complete control, without influence or pressure from investors
• Steady and sustainable growth
• No pressure to make repayments
• Startups which succeed via self-funding alone can be very impressive to potential future investors.

Cons:

• Limited resources - with the risk that you may never have enough capital to cover your initial overheads
• Slow growth
• Personal financial risk.

2: Friends and family

Raising capital from friends and family is another common funding route for early-stage businesses.

It involves leveraging your personal networks to raise capital quickly and flexibly. You don’t need to pitch to investors, as your friends and family believe in you and your vision - and are willing to put their money behind it.

However, it’s important that all transactions are handled professionally, with clear terms and agreements. Otherwise, this could potentially damage your personal relationships.

Pros:

• Complete control - like with bootstrapping, you can often retain full ownership and control when raising funds through personal networks.
• Flexible repayment terms
• Raise capital quickly, without the complications and formalities involved in institutional investment
• Emotional and moral support.

Cons:

• Potential strain on your personal relationships
• Limited amount of capital
• No access to other resources, such as the business expertise, mentorship and networking opportunities available with formal investment.

3: Crowdfunding

Crowdfunding allows startups to raise capital online from a large number of supporters, through platforms like Kickstarter, Crowdcube and Seedrs. You can choose from several types of crowdfunding campaigns, including reward-based, equity and donation-based.

It’s proved a popular choice for UK startups looking to raise capital, with the average sum raised via crowdfunding sitting at around £500,000 (in 2024).¹

Pros:

• Effective way to test demand, build a community and generate pre-sales
• Flexible and accessible way to raise capital without traditional investors
• No repayments (although you will need to honour rewards)
• There’s a chance to raise additional capital by exceeding your target.

Cons:

• Extremely time-intensive, with successful campaigns requiring planning, marketing and continuous engagement
• Success isn’t guaranteed and you may not meet your funding goals
• There are costs involved, including platform fees and marketing expenses
• Equity dilution, if you choose to give away equity to supporters.

4: Venture capital

Venture capital (VC) is institutional funding provided by venture capital firms in exchange for equity. It’s provided in the following funding rounds, depending on the stage the business is at:

• Seed funding
• Series A funding
• Series B funding
• Series C funding
• Additional late-stage funding rounds - Series D, Series E and so on.

It’s best suited for startups with high growth potential and a scalable business model. If you need a large cash injection and are comfortable giving up equity and control to get it, this may be the best route to follow.

VC investment may also open the door to other benefits, such as strategic guidance and access to networks. However, investors have high standards and will carry out extensive due diligence, so you’ll need to have your business plan, market research reports and financial projections ready.

They’ll also demand a lot in return for their investment, so you may face intense pressure to achieve growth targets and deliver high returns. It’s also common for VC investors to take a seat on the board, thereby influencing key decision-making within your company.

If you can handle all of this though, venture capital funding could fire a rocket under your new company and help it achieve rapid expansion. In fact, some of the world’s biggest brands owe their success to early-stage VC investment.

Pros:

• Access to large capital amounts, potentially in the millions of pounds
• Expertise, mentorship and networking opportunities
• Prestige - any startup with the backing of a well-known VC is bound to enjoy a boost in credibility, which could pave the way for future investment.

Cons:

• Loss of equity and control
• High expectations and pressure to achieve growth and returns targets
• In-depth due diligence requirements
• Competitive landscape - with lots of startups competing for funding, it can be hard to stand out.

💡 More on the advantages and disadvantages of venture capital

5: Angel investors

Angel investors are high-net-worth individuals who invest their own money into startups, often in exchange for equity. You’ll also find angel syndicates, where individual investors pool their funds together to offer larger investments.

This kind of investor usually comes in at the seed stage, offering funding alongside non-financial benefits such as mentorship, connections/introductions and business advice.

Pros:

• Flexible and faster access to capital - especially compared to other types of traditional financing
• Access to mentorship, support and advice from experienced entrepreneurs
• Networking opportunities and introductions
• Potential for further financing rounds
• Credibility boost - the backing of an influential industry figure can be great for your startup’s reputation.

Cons:

• You may need to give up equity - which means some loss of ownership/control
• It’s crucial to get the right fit in terms of ethos and expectations - as investors and founders will be working closely together
• Limited funding amounts - this may make angel investment unsuitable for startups with high initial overheads.

6: Government grants

Government grants provide what is known as non-dilutive funding, which means you don’t need to give up equity. It may also mean that you don’t have to make any repayments, unlike with business loans provided by banks or other providers.

In the UK, there are schemes such as Innovate UK, the Seed Enterprise Investment Scheme (SEIS), and Research and Development (R&D) Tax Credits available for startups and small businesses. These offer financial support for innovative and early-stage companies.

However, grants are competitive and keenly sought after. They also tend to be tied to specific industries or research projects, or only available to organisations with a social or community purpose.

The application process can be time-consuming, but the funding can be incredibly useful. If your startup is working on a tech, scientific or sustainability-focused project, applying for a government grant could be a smart move - helping you secure funding without losing ownership.

Pros:

• Non-dilutive, so you don’t need to give up equity
• Support for innovation, research and development - ideal for tech or science-focused startups
• Financial relief and tax breaks are available
• No need to make repayments in many cases, unlike with business loans.

Cons:

• Highly competitive - the best grants receive thousands of applications, so can be very difficult to get
• Application processes can be lengthy, time-consuming and complex - you’ll need to commit significant resources to put in a strong application
• Restrictions on what you can use the funds for
• Strict accountability requirements.

7: Business loans and lines of credit

Last but not least, we come to business loans and lines of credit. These offer startups access to capital without the need to give up equity, but then of course there are repayments and credit scores to worry about.

Your business will either borrow a fixed amount (a business loan) or draw funds as needed (line of credit) typically from banks. However, there are also a number of online lenders and alternative finance providers out there.

While interest rates and repayment terms vary, debt financing can be a cost-effective way to manage cash flow or fund growth. There are also schemes available in the UK to help new businesses access funding with favourable terms - key examples being the British Business Bank and the government-backed Start Up Loans scheme.

Pros:

• No loss of equity or control
• Predictable repayment schedules - making it easier to manage cashflow and financial planning
• An opportunity to build the company’s credit score - as long as you can make repayments on time.

Cons:

• Financial risk - as most business loans require collateral
• Strict eligibility criteria - especially in relation to business viability and credit history
• Debt burden - the pressure to meet a repayment schedule can be hard to manage, especially if your startup has unpredictable revenue.

Grow your company and go global with Wise Business

While you’re researching funding options for your startup, it’s also worth making sure you’re set up with the right business account. Open a Wise Business account and you can hold and exchange 40+ at once.

You can send fast, secure payments to 140+ countries, and get account details to get paid in 8+ currencies like a local.

Whenever you need to send, spend or exchange foreign currencies, you’ll benefit from the mid-market exchange rate, with low, transparent fees.

You’ll also benefit from all of these features with Wise Business:

• No ongoing fees, minimum balance requirements or foreign transaction fees
• Debit and expense cards for you and your team, which you can use in 150+ countries
• Multi-user access for team members, with ways to control and manage permissions
• Pay up to 1,000 people at once with the Wise batch payments feature
• Integrate with your favourite cloud accounting solutions
• Use the powerful Wise API for automation and streamlining workflow
• Take advantage of Wise Interest to make your funds work harder when you’re not using them (capital at risk).

With a truly global account, you’ll be all set to grow your business worldwide.

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Capital at risk. Growth not guaranteed. Wise Assets UK Ltd is authorised and regulated by the Financial Conduct Authority with registration number 839689. When facilitating access to Wise investment products, Wise Payments Ltd acts as an Introducer Appointed Representative of Wise Assets UK Ltd. Please be aware that we do not offer investment advice, and you may be liable for taxes on any earnings. If you’re uncertain, we urge you to seek professional advice. To find out more about the Funds, visit our website.

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After reading this, you should have plenty of food for thought on how to raise funds for key business startup costs.

All of the above are viable business funding options, although not all will be a good fit for your company. You’ll need to do your research and create a funding strategy that works for you. Good luck!

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Sources used for this article:
1. Beauhurst - The State of UK Equity Crowdfunding

Sources checked on 01-May-2025