Funding options for small businesses
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Posted: Fri 28th Feb 2025
7 min read
What does it take to grow your business? A bigger workplace? More employees?
Perhaps you need to spend more on marketing, buying another business is on the cards, or a new piece of equipment will help you make the leap. No matter what it is, it needs to be paid for.
In the past, a business owner could pop to the bank, speak to their bank manager and hope they said yes to a loan request. Now, due to innovations in finance, there are lots of funding opportunities for you to consider.
In any case, when it comes to securing capital to grow a business there are effectively three options: Grants, equity investment and borrowing. Below, we take a closer look at these three funding options.
Option 1: Grants
There are lots of grants that businesses can access. And a real benefit is you don't need to pay them back.
But if you want to win one, you need to check whether your business is eligible for it. There are grant finder tools you can use for this.
Criteria can be based on a particular location, for example, or aimed at certain businesses – such as those focused on innovation or sustainability.
Once you've found an ideal grant, you need to apply for it. In your application, you have to make a strong case why your business needs the funding. And move quickly too, as awards can be made before the advertised closing date.
Additionally, if you decide to go down the grants route, be aware that the application process can be lengthy and there's no guarantee you'll be successful.
Option 2: Equity funding
Would you be prepared to give up some ownership of your business to generate funds?
If that's a yes, equity funding could be a good option. You'll receive cash in exchange for a percentage of your business.
If you've watched Dragons' Den on TV, you'll have a good idea of how equity funding works (although the process is sped up for the TV show – negotiations take a lot longer than what's shown).
To get funding, you have to pitch to investors (you may be required to create a pitch deck for this).
As part of the process, you'll have to do the following:
Reveal how much money you need
Explain how you'll use the funds
Talk about your business's financial position (it's important to know your numbers)
Share your business story
Provide background on your team
Investors want fast growth and a sizeable return on their investment, so equity funding might not be the best option for your business.
But if you do go down this route, you may find that, as well as funding, your investor shares their expertise and access to their contacts, which will give you a greater chance of achieving your goals.
It's a good idea to do your research when finding investors and look for someone who has knowledge of your industry and can provide the support you require.
The process can take time and you may need to do a lot of pitches before you get the funds you desire, with terms that fit your needs.
Option 3: Debt
If you want more control over the funding you get, taking on debt is a good option to consider.
You get to keep control of your business and don't need to sell a portion of it for funds, while you can also access the money when you need it (rather than waiting to find the right grant or searching for an ideal investor).
However, remember that whatever funds you borrow needs to be paid back to the lender, with interest.
If you decide to seek debt finance, it's important to borrow wisely. Missed payments can result in negative repercussions, while interest rates can go up (meaning your payments could too).
And for some loans, a personal guarantee is required, which could affect your personal credit rating.
Today, there are lots of borrowing options available to you, with specialised products, competitive prices and flexible repayment terms worth checking out. That means you don't just have to go with your local bank.
While it can still play an important role for your business, there are lots more lenders on the market to consider.
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Choosing your funding options
Today, you have a wide range of choices when it comes to finding funding for your business. And you don't need choose just one option.
Do your research and see what's available to you, whether it's via grants, giving up equity to raise funds or going down the borrowing route. Consider how quickly you need the funds, as that might influence your choices.
And if you need help with funding or getting clarity on your finances, your accountant (if you have one) will be able to support you.
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