7 Sources of Small Business Capital

Jun 29 2016

Darren Best

A common statistic bandied around about start-ups is that 90% of them fail. Which isn’t necessarily true, as according to the Statistic Brain Research Institute they estimate almost 50% of new businesses don’t make it past four years, which is a much more reasonable stat to ingest. Their research also found that ‘incompetence’ was the number one reason responsible for 46% of all business failures. This involved pitfalls such as ‘no knowledge of financing’ and ‘inadequate borrowing practices’. So to avoid small business failure, you must get your financing right. Here are your small business finance options:

Six Funding Options

The traditional method for sourcing finance for your business would be to turn to banks to apply for business loans. But this isn’t your only option in today’s market, capital can come from anywhere. Here are six funding options:


Banks have been offering business loans for centuries, and many claim they are still interested in helping grow small businesses in the UK. The big banks offer a range of different loans, with varying borrowing limits, interest rates, conditions and perks. Here’s a quick overview. [caption id="attachment_709" align="alignnone" width="685"]Hsbc small business loan finance Image credit to: Shutterstock/ pixinoo[/caption] HSBC:
  • Small business loans available up to the value of £25,000
  • Same day funding once approved
  • Competitor interest rate match
  • Repayment terms between 12 months and 10 years
  • No charges for additional repayments
  • Option to defer first payment with 3 months’ repayment holiday
  • Fixed monthly repayments
  • £100 arrangement fee
  • Early repayment charge applies of 1 calendar month and 28 days’ interest
Barclays Bank:
  • Borrow up to £25,000
  • 6 months’ repayment holiday
  • Repayment terms from 1 to 10 years
  • Choose repayment option (lower monthly repayments for longer terms and higher for shorter terms)
  • Enterprise Finance Guarantee for aspiring businesses with insufficient security
  • Borrow up to £25,000
  • Pay-back terms up to 10 years
  • No arrangement or security fees
  • 1% discounted borrowing rates for Advantage Business customers
  • Fixed rate loan
  • Early repayment charge of two months’ interest
Lloyds Bank:
  • Offers four loan types, here are two
  • Base Rate Loan: interest rate varies on B of E base rate which sits at 0.5% currently, loan amount; £1,000+, loan term; 1 – 25 years and no early repayment costs.
  • Fixed Rate Loan: negotiable interest rate, fixed for term between one and 10 years, loan amount; £1,000 to £50,000 and no early repayment costs.

Home Equity Loan

If you already have a home, are paying bills and have had a secure job for a number of years. Then going out on your own could seem daunting. But if you start your business venture a little later in life you actually have the potential to borrow against the equity you have built-up on your home. Most banks allow people to borrow up to 80-90% of the equity stored in your home.

Government funding

The UK government offer a number of funding options that can be applied for. There’s which allows borrowers to take up to £25,000 in financing, with a fixed 6% interest rate. The loan term can be between 1 and 5 years, and it’s free to apply and arrange. The government issued 13,336 of these loans to small businesses in the UK last year. In addition to the financing, the scheme endeavours to offer support alongside loans by providing mentoring, guidance, resources and tools to help anyone starting a business. Something you wouldn’t necessarily receive when borrowing from a bank.


Other than start up loans, there a large amount of government schemes that offer business grants and funding. In fact, there are 236 available schemes currently listed on the business and finance support page. These range from £5,000 towards employee training costs, to broadband support and job creation grants. One of the most well-known schemes is the Prince’s Trust. This initiative has been helping young entrepreneurs for the last 40 years and help setup over 80,000 young people’s businesses. Their service is comprehensive, offering to cover the costs of setting up your business. The Enterprise scheme includes finance support of up to £7,500 low interest loan as well as business grants in special circumstances.


As the sharing economy fostered and grew, a new form of funding and investment emerged. Crowdfunding is the modern-day auction house come Wall Street. Investors from all over the world can view your business plan, your business offering and your aims and objectives online, then pledge an amount, large or small, to invest in your company. Crowdfunder and crowdcube are two of the most well-known and most used services in the UK. Positives: - Anyone can invest - No application - No upfront fees - No interest repayments - Diverse range of investors (as members of the public and professional investors can invest) Negatives: - Generating interest can be difficult - Time-consuming - Not guaranteed to raise the finance target you set - You must sell off equity shares in your business - And share your profits at year-end

Friends and Family Investment

There are, of course, several other ways to source capital for your small business. And according to nearly one third of all small businesses in the UK borrow from their friends and family. And of course it makes sense to borrow from people you know. Unlike banks, they don’t require you to pass any checks and they won’t care what your credit rating is. You can either seek to borrow with the view to simply pay them back, or many people offer shares or stocks in their new business so the money borrowed does not need to be paid back. It’s a great opportunity for both you as a new start-up and for them as a venture. It is imperative to have contingency plans in place and to thoroughly discuss the terms of your agreement before taking money from friends or family. They will be your biggest supporter, but they will also expect respect. So be sure to talk through what happens if your small business fails and give them guarantees that you can keep. Show them business plans, forecasts and budgets just like you would any investor. No matter how you decide to obtain finance for your small business, we hope the above points will help you figure out what’s best for your start-up. Call us to discuss your business needs and any office requirements you may need.

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