Although having a broad range of financing available is hugely beneficial to startups, it can be difficult to know where to start looking and also to understand how the features of each finance product – fast access to borrowing, for example – can help you reach your first strategic goal ahead of time.

What types of startup funding are available for your business?

Secured and unsecured loans

If your new business has traded for a while and built relatively predictable cash flows you may be eligible for a secured or unsecured loan. Secured loans involve providing a business asset as collateral for the lender, which reduces their risk and can open up access to lower interest rates.

Unsecured loans don’t require assets as security, and for this reason, can be quicker to access. The downside is that, as new businesses have a limited trading history, you may have to provide a personal guarantee to repay any outstanding sums if your business cannot afford to pay.

Asset-based financing for startups

Asset-based funding helps your business to purchase expensive equipment, machinery, or other hard assets that are necessary to operate efficiently and grow without using up vital capital.

Monthly repayments are fixed and can be spread over several years if necessary, within either a lease arrangement or a hire purchase agreement that offers asset ownership at the end of the contract.

Revolving credit facility

A revolving credit facility is a good choice for startups that have been trading for a short while rather than brand new businesses. Revolving credit is finance with a set limit that can be used and repaid by the business multiple times during the life of the facility.

Lenders typically need to see a few months of trading history and/or a minimum turnover before they’ll sanction this financing, but it’s the flexibility to use it as and when needed that really benefits some startup businesses.

Invoice financing

Invoice finance leverages the value locked inside your sales ledger and provides regular inputs of cash throughout each month as you issue your invoices. A typical invoice funding arrangement will see the lender advancing 80-90% of the value of each invoice within 24-48 hours – cash that you can use to fund day-to-day activities or grow your startup a little faster.

A key benefit of invoice finance when you’re a new business is that your customers’ creditworthiness is taken into account when considering eligibility, rather than that of your own business.

Startup loan scheme

If you have trouble securing startup finance, the British Business Bank’s Startup Loan Scheme could be a good option for you. It’s a government-backed scheme whereby you repay the loan over 1-5 years and your business can access up to £25,000 at a fixed annual interest rate of 6%.

Considerations when sourcing startup funding

Not all funding options will suit your business so it’s important to consider its specific needs – defining your short-term and longer-term goals helps with this. Also, think about the industry you’re in as some industries benefit from specific types of funding.  

Lenders will need a detailed business plan in support of your application to understand the purpose of your startup, how you’ll grow the business over time, and how their funding supports this process.

Once you’ve secured finance, make sure to spend it as planned so the business receives the boost it needs at this important stage, then you can stay on track and develop into the fully fledged, successful business you envision.