Startup Funding in the UK: The Complete Guide (2025 Update)
Written by GrantTree
Last updated: May 2025
Getting startup funding is one of the biggest challenges for UK entrepreneurs.
Whether you’re looking to hire your first employee or scale a market-ready solution, identifying and securing capital at the right time and on the right terms can determine whether or not your business succeeds.
Key routes to funding for startup companies include:
- Grants and tax credits – key sources of non-dilutive startup funding
- Equity investors – including angels and venture capital firms, who fuel commercialisation and scaling
- Alternative options – crowdfunding, venture debt, and other, newer capital sources
However, with so many options available, it can be hard to know where you should focus your precious time. This guide is designed to give you clarity, taking you through the full landscape of startup funding. It covers:
- What types of funding are available
- Who is eligible to apply
- Expert tips on securing the right funding for your startup
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Contents
Friends, Family and Fools
If you don’t have a strong track record of launching successful businesses, you probably won’t be able to secure startup funding from traditional investors or lenders right away.
If you don’t have enough capital to bootstrap your business yourself, your best option could be friends and family. In funding parlance, this group is usually referred to, rather unkindly, as ‘Friends, Family & Fools’.
Friends and family are often the first people to provide funding for startup companies and budding business leaders. They are usually flexible when it comes to repayment and other terms. Also, they are normally willing to provide funding without the extensive background checks that would accompany a private loan or equity raise.
But raising money from close acquaintances is not without its pitfalls. Your personal relationships could be damaged if your business fails.
Without a good sense of your company’s valuation, which is difficult to calculate early on, you may surrender too much equity in your business.
There’s also the distinct possibility that your friends and family will still ask for their money back. This is something professional investors, who understand the risk of startup investment, wouldn’t do.
Key Resource
If you’re interested in raising money from friends and family, make sure you check out this excellent resource from the Founder Institute.
Government Funding for Startups
From R&D Tax Relief to Patent Box, Innovation Grants to Creative Industries Tax Reliefs, the UK government offers a range of startup funding options.
This section covers the different schemes offering funding for startup businesses. For each one, it explains:
- What’s available
- How much funding is on offer
- Who’s eligible
Innovation Grants
Innovation grants are a popular and generous source of funding for startup businesses. They work by awarding cash lump sums to companies looking to develop game-changing technologies.
Grant-worthy ideas can come from companies of any size, not just those that can shoulder millions in development work. Indeed, many innovation grant competitions have specific tracks for early-stage companies which award funding for technical feasibility studies and other foundational R&D.
Winning a grant early on in your business’s life gives you much more than money. Grants are the ultimate source of external validation—a statement from a discerning and informed source that your development work is technologically significant.
VCs and Angel investors tend to take notice of companies that have won an innovation grant. So, if you can win a grant early on, you should stand a far better chance of attracting investment. And doing so on highly favourable terms.
If you are looking for an innovation grant, the key is to keep an eye on what competitions are available from the main grant-awarding bodies like Innovate UK.
Grants Eligibility Quiz
Find out if you’re eligible for a game-changing innovation grant by answering these eight simple questions.
R&D Tax Relief
R&D Tax Relief offers funding to companies that have conducted qualifying research and development.
Providing UK businesses more than £7 billion per year, R&D Tax Relief works by reimbursing eligible companies up to 27% of their qualifying development costs, including wages and subcontractor fees.
Funding is provided as cash credits, corporation tax discounts or both.
To qualify, you need to have undertaken work that meets the government’s strict but hard-to-apply definition of ‘research and development’.
To make matters confusing, R&D Tax Relief is made up of multiple schemes:
- The merged or ‘new’ R&D expenditure credit
- Enhanced R&D intensive support, aka ERIS.
- SME R&D Tax Relief
- The ‘old’ RDEC scheme
Which one you need to claim under depends on a number of variables, including when your accounting period started, how large your company is, and how much you invested in R&D.
Over the last 15 years, GrantTree has secured almost £500 million for UK companies through this scheme. If you would like to know whether you’re eligible or want help making a claim, we’re here to help. Just get in touch.
Key Resource
Check out GrantTree’s comprehensive guide to this important scheme, covering who is eligible, how much tax relief you could secure, and how to apply.
Creative industries tax relief
Creative industry tax reliefs are a set of schemes that offer funding to startup companies.
They work by providing tax relief to companies in the artistic industries.
There are eight kinds of creative tax relief in total, each serving a different field.
The specific reliefs are for:
- Video games
- Films
- High-end television
- Children’s television
- Animation television
- Theatrical productions
- Orchestral concerts
- Museum or gallery exhibitions
Creative industry reliefs work by refunding up to 20% of your eligible costs as a tax reduction or a cash lump sum.
If you are a video games studio or are developing AR or VR experiences, you may qualify for thousands of pounds in Video Games Tax Relief.
You can learn the basics of Video Games Tax Relief (VGTR) here.
The Patent Box
The Patent Box is a generous but underutilised scheme that lets companies convert IP into a recurring relief on their corporation tax bill. In doing so, it allows companies to do something they ordinarily struggle with: monetising their patents.
The Patent Box works by giving eligible companies a reduced tax rate on profits generated by patented technologies and concepts. So instead of the usual 19% corporation tax rate, you will pay just 10% tax on profits from product revenues, royalties, damages and related activities.
If you are ‘exploiting’ a patent and are liable for corporation tax in the UK, there’s a good chance your company will be eligible for the Patent Box scheme.
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Crowdfunding for UK Startups
The popularity of Crowdfunding as a source of startup funding has skyrocketed in recent years.
According to Beauhurst’s Following the Crowd report, more than 1,600 UK companies have raised money through crowdfunding in the last decade.
And thanks to the rise of intuitive platforms like Crowdcube and growing demand among retail investors for equity in promising UK startups, this trend is likely to continue for years to come.
Crowdfunding can be worth exploring for companies that have found it difficult to acquire capital from more ‘traditional’ sources of funding for startup businesses.
But be warned that crowd-sourced finance is also highly competitive. Standing out from the hundreds of other businesses raising money this way can be expensive. And even if you invest in marketing and outreach, there’s no guarantee you’ll reach your funding goal, meaning you’ll have to start your campaign again from scratch.
Also, companies rarely raise large amounts of money through crowdfunding. For instance, successful projects on Kickstarter raise an average of just $26,000.
Still, Crowdfunding can be a helpful ingredient in your funding cocktail, allowing you to augment the other, more substantial funding sources explored in this guide.
Rewards-Based Crowdfunding
Rewards-based crowdfunding is where businesses offer consumers perks like discounts and exclusive merchandise in exchange for a small contribution towards their development costs. This kind of arrangement is what most people imagine when they think of crowdfunding.
Rewards-based campaigns can do much more than provide a cheap and non-dilutive source of investment capital; they are also an excellent and perhaps unique opportunity to galvanise a community of evangelical users. This support can really help you ramp up your marketing efforts when you launch your product.
The downside of rewards-based campaigns is that it can be difficult to lure enough investors to reach your funding goal. B2C crowdfunding is especially competitive, so you might decide that the resources you’ll invest in marketing and outreach are better spent elsewhere.
For more information about completing a successful rewards-based crowdfunding campaign, take a look at this excellent guide from Republic.
Rewards-Based Crowdfunding Platforms
Key Resource
Want to learn more about rewards-based crowdfunding? Check out this great guide by Republic.
Equity Crowdfunding
Equity crowdfunding is another source of funding for startup businesses.
It works much like rewards-based crowdfunding. However, instead of product-related perks, you’re offering investors a small share in your business in return for their money.
One of the main advantages of equity crowdfunding is that it limits the risk borne by each individual, which makes it easier to convince investors to part with their money. Also, by securing a little capital from a large number of people, you can prevent any single shareholder from gaining real power over your company.
However, equity crowdfunding also has some significant drawbacks as a source of funding for startup businesses. One of the main drawbacks is that you have to relinquish equity in your company.
If you have shares in a growing business, you want to retain as much of that holding as possible. Equity gives you control, provides remuneration, and will hopefully convert into a lucrative payoff when it comes time to exit. The earlier you relinquish equity, the more you’ll be forfeiting in potential returns.
Equity Crowdfunding platforms
Key Resource
If you’re interested in learning more about Equity Crowdfunding, take a look at this excellent guide from Republic Europe.
Debt Financing
Debt financing can be an excellent source of funding for startup businesses. One of its main advantages is that you don’t have to give up equity in your business, a top priority for any entrepreneur.
Yes, debt funding can be expensive for startups. And some institutions flat out refuse to lend to early-stage businesses because they think they’re too risky. But there are still several debt financing facilities that could provide the capital you need to reach your next stage of growth.
Here’s a breakdown of the main types of debt funding you should explore.
Debt Financing for UK Startups – The Ultimate Guide
A complete guide to loans for UK startups, including:
- The debt options available for high-growth startups
- The advantages and disadvantages of debt
- A typical debt financing process
- Getting your startup ready to apply for debt financing
Read GrantTree’s Debt Financing Guide
Startup Loans
The Startup Loans scheme is a state-backed initiative offering favourable rates to businesses less than two years old. Founders can borrow between £500 and £25,000 over a repayment term of up to 5 years, at a fixed interest rate of 6%.
Applying for a Startup Loan is free. All you need to do is complete a relatively simple online form and submit a business plan, along with cash flow statements. However, if you need a little extra guidance, the Startup Loans’ website has a library of helpful resources for preparing these documents.
Depending on how much startup capital you have, a Startup Loan can be a valuable source of relatively inexpensive debt financing. The rates are much more generous than those offered by high-street banks and other private lenders. Unlike many traditional financial institutions, Startup Loans actually lend money to riskier startups.
Advance Funding
Advance Funding is a versatile source of funding for UK startup businesses. It combines all the benefits of government funding, including accessibility and equity protection, with the speed and flexibility of debt financing.
R&D Advance Funding
Through R&D Advance Funding, GrantTree can advance you as much as 80% of your future R&D Tax Credit up to 6 months before your financial year-end.
You can secure the most favourable terms by working with GrantTree. If your claim is prepared by our experts, it reassures lenders that your claim should be processed without issue, giving you access to better rates.
Grants Advance Funding
Innovation Grants Advance Funding offering lets you access the first six months’ worth of your grant windfall, helping you solve cashflow issues and accelerate key investments.
Peer-to-Peer Lending
Peer-to-peer lending is where companies source debt financing from a network of small lenders via an online platform like Funding Circle.
Sometimes referred to as debt crowdfunding, P2P lending carries all the same risks as regular corporate debt. But by swapping established institutions for a collection of smaller lenders and expensive go-betweens for an automated platform, peer-to-peer lending can make debt financing cheaper and more accessible for your startup.
Peer-to-Peer Lending Platforms
Convertible Loans
Convertible loans are a type of short-term debt that converts into equity at a later date.
A lesser-used form of funding for startup companies, convertible loans incentivise lenders to finance high-risk companies with the prospect of a potentially lucrative shareholding.
The loan-to-equity conversion happens at an agreed time or moment called a ‘trigger’. Triggers are typically are set at the moment the loan recipient completes an equity fundraise over a certain size.
Convertible loans are easier and faster to secure than equity fundraising, which makes them a useful source of bridge funding. Also, you usually don’t have to pay interest on convertible loans because any interest accrued simply translates into additional equity.
However, as with other kinds of debt financing, the main disadvantage of convertible loans is that they have a high priority when they mature.
Unsecured Business Loans
Unsecured loans are another viable source of funding for startup companies.
What sets them apart is that they do not rely on collateral for security. This makes them particularly useful for startups that need funding but don’t have assets to leverage. Unsecured loans are also relatively quick to arrange and have flexible repayment terms.
The downside is that without the security of an asset, unsecured loans tend to be smaller. Usually no more than £25,000.
Also, if your business is pre-revenue, your lender might ask you to provide a personal guarantee, meaning they can pursue your personal assets if your company doesn’t pay back the money.
For a list of unsecured business loan providers, check out this detailed resource from businessfinancing.co.uk.
Short-Term Business Loans
Short-term business loans let you borrow as much as £1,000,000 for up to 12 months.
There are various short-term business loans, including term loans, asset financing and invoicing, depending on what your company needs.
Short-term loans are beneficial if you want to bring forward a business-critical purchase or need to escape an immediate financial bind. However, these loans do come with relatively high interest rates. Typically, 5% to 10%. Also, they are generally unsecured, meaning you may need to provide a personal guarantee.
For more information about loan providers, take a look at money.co.uk’s analysis of the top 8 short-term business loans on the market.
Business Line of Credit
A business line of credit is a pot of money your company can draw on as and when needed.
Unlike conventional loans, a business credit line only accrues interest on money you actually borrow rather than the whole lump sum. In that sense, a line of credit works a bit like a credit card.
On top of being a useful source of cash, you can use business credit lines as a kind of low-cost emergency cash reserve, protecting your startup against financial shocks or dips in company performance.
The size of the credit line you’ll have access to is usually tied to your company’s financial performance. This makes credit lines more suited to established, cash-generating companies.
If you’re looking for a business line of credit, make sure you peruse this comprehensive list of providers from smallbusinessprices.co.uk.
Venture Debt
Venture debt is another potential source of funding for startup businesses.
It is a type of debt financing tailored to venture-backed growth companies.
Unlike other forms of financing, venture debt is not dependent on collateral or your company’s cash flow. Instead, lenders prioritise your ability to continue growing and raise additional investment capital, enabling you to repay your loan.
In some cases, lenders will provide venture capital in exchange for warrants. Warrants let lenders purchase equity in your business at a guaranteed price over a set period. As your company grows, these warrants increase in value. This creates larger returns and a bigger incentive for venture debt lenders.
Venture debt could let you raise additional investment capital quickly and without significant dilution to your company’s equity. If you want to learn more about this form of financing, take a look at the range of detailed articles on Silicon Valley Bank’s website.
Equity Funding for UK Startups
Equity funding is where private companies sell shares in their business to outside investors in exchange for startup funding.
For UK startups, this equity investment is generally provided by Angels, wealthy individuals who invest their own money, and Venture Capitalists, firms that leverage personal and institutional capital to purchase stakes in high-growth businesses.
While both Angels and VC firms invest in seed and venture-stage businesses, they are very different when it comes to how much they are willing to allocate, the level of due diligence they perform, and the kinds of companies they choose to back. We explore these differences between Angels and VCs in more detail below.
We also cover two government schemes – EIS and SEIS – that provide tax relief to investors who back early-stage companies. If you’re hoping to secure equity investment for your startup, applying to these schemes is a great way to sweeten the pot for investors.
For more advice on finding and securing Equity Funding generally, check out Crunchbase’s fantastic guide to raising capital for startups.
Angel Investors
Angel investors are wealthy individuals who invest in startups using their own money.
Angels practice a high-risk, high-reward investment strategy. They take large stakes in unproven seed and venture-stage businesses, hoping that one out of every ten or 20 investments delivers a substantial pay-off.
Angel investors’ affinity for risk makes them excellent partners for early-stage startups, as does the fact that many Angels are themselves former entrepreneurs, and therefore have a good understanding of what it takes to grow a successful business.
Some people believe the best way to find Angel investors is through personal and professional networks. It’s certainly true that leveraging a personal connection can help you stand apart from the countless other companies searching for funding. So, if you can’t reach Angel investors through your existing network, it might be time to join an established business community like London & Partners.
But tapping your network isn’t the only way to engage an Angel investor. Another effective and sometimes more efficient route is to reach out directly to Angel networks. Angel Networks are essentially communities of Angel investors that pool resources and investment opportunities, many of which have easy-to-use submission portals where you can pitch your business.
Here are some of the most active Angel networks in the country. You can also check out Beauhurst’s excellent list of the 23 most active Angel networks in the UK.
Venture Capital
Venture Capital firms are the largest providers of equity funding for startup businesses. While Angels tend to invest their own money, VCs source capital from a combination of wealthy individuals and financial institutions. VC firms also usually invest more money than Angel investors and prefer more mature companies with a more developed investment proposition.
While these points are generally true, Venture Capital firms vary significantly in terms of their typical investment size and the kinds of companies they’re looking to add to their portfolio. So, before pitching a VC firm, you should make sure they’re a good fit for your company.
A good place to start would be looking at the other companies the firm has invested in recently and what industries and technologies the firm focuses on. Platforms like Crunchbase offer an easy way to find and filter VC firms based on the kind of investment partner you are looking for.
Even after narrowing your search and utilising a sophisticated VC database like Crunchbase, you should still expect to pitch a lot of different firms before you find one that will agree to participate in your fundraise.
Seed Enterprise Investment Scheme (SEIS)
The Seed Enterprise Investment Scheme helps early-stage startups secure their first tranches of outside investment.
One of four widely popular venture capital schemes, SEIS works by giving private investors a range of tax reliefs on cash used to buy shares in fledgling businesses. Investors must hold their shares for a minimum of three years to receive the full benefits of the scheme.
SEIS-qualifying companies can pocket up to £150,000 in investment – a significant sum in the first few years of business. SEIS eligibility is determined by how long your company has been trading for (under two years), how many employees you have (less than 25), your gross assets pre-money (under £200,000), and a few other criteria.
The tricky thing is, you won’t know whether your company qualifies for the SEIS until you’ve completed your funding round. This regrettable lack of visibility means investors don’t know whether they will receive tax benefits from the scheme until after they’ve put their money in.
Thankfully, HMRC has created a handy workaround to this problem: SEIS Advance Assurance.
SEIS Advance Assurance
SEIS Advance Assurance is where HMRC tells an investor that they are likely to qualify for the Seed Enterprise Investment Scheme. It is designed to give investors confidence that they will be able to access their relief when deciding where to allocate their capital.
While it is not directly a source of funding for startup companies, it can help startups secure financing from investors.
Enterprise Investment Scheme
Like the SEIS, the Enterprise Investment Scheme provides tax reliefs to investors who buy and hold shares in early-stage companies. This helps drive funding to startup businesses.
However, while the SEIS is targeted at seed-stage startups, the Enterprise Investment Scheme is designed for more ‘established’ businesses.
This ‘design’ manifests as slightly lower levels of relief (30% income tax relief rather than 50%, for example), but a far higher ceiling for the amount of money that can be invested and received.
You can find a complete list of eligibility criteria on the EIS website.
EIS Advance Assurance
HMRC also offers Advance Assurance for the EIS scheme.
Like SEIS Advance Assurance, applying for EIS Advance Assurance is a simple matter of providing HMRC with information about your business and upcoming raise.
You can apply for Advance Assurance using this form.
Find Funding for Your Startup
That brings us to the end of GrantTree’s guide to the UK startup funding ecosystem. If you want to explore the funding options open to your company, just get in touch. Our experts would be happy to help.