Every founder we speak to asks the same question: "What kind of funding should I take?" The honest answer is "it depends", but the framework below is what we explain when there is time.
0. Bootstrapping
Funding yourself from revenue and savings. Best for: founders with a proven offer who want full control. Worst for: capital-intensive businesses where waiting kills the opportunity. Pros: no dilution, no interest, no governance overhead. Cons: slow, exhausting, and you carry all the risk.
1. Grants
Free money. The main UK sources are Innovate UK (R&D-led), local Growth Hubs, the Prince's Trust, regional development funds and sector-specific programmes (creative, agri, manufacturing). Pros: non-dilutive, no repayment. Cons: applications take weeks, success rate is single-digit, criteria are narrow. Use gov.uk Business Support Finder before applying anywhere else.
2. Start Up Loans (British Business Bank)
Government-backed personal loans up to £25,000 at 6% fixed, plus 12 months of free mentoring. You apply as an individual but use the money for the business. Pros: cheap, mentor support, accepts founders banks would reject. Cons: personal liability — you owe it even if the company fails.
3. Working-capital loans (us and similar lenders)
Short-term unsecured business loans to the limited company. Best for: bridging a known cash gap (a big invoice you know is coming, restocking before peak season, replacing a tool that broke). Pros: fast, no personal guarantee with us, fixed cost. Cons: short term — you must be able to repay quickly.
4. Asset finance
Lease or hire-purchase for vehicles, equipment, machinery. Best for: an asset that generates revenue immediately. Pros: spreads the cost, often more tax-efficient than buying outright. Cons: the asset is collateral; default means repossession.
5. Invoice finance
Borrow against unpaid invoices. Best for: B2B businesses with long invoice terms. Pros: scales with the business, unlocks trapped cash. Cons: fees stack, and some providers contact your customers (factoring) which can affect your relationship.
6. Bank overdraft / SME term loans
Traditional bank lending. Best for: businesses with 2+ years of trading history and a strong relationship with the bank. Pros: usually cheapest. Cons: slow, paperwork-heavy, often requires personal guarantees (PGs) which we deliberately do not.
7. Equity — angels and VC
Selling a share of the company. Best for: high-growth, capital-intensive businesses with a credible path to a £10m+ exit. Pros: no repayment, brings expertise. Cons: heavy dilution, loss of control, board overhead, expectation of exit timelines that may not fit your goals.
The honest summary
Most UK micro-businesses do best on a mix: a Start Up Loan to launch, bootstrapping for the next 18 months, and short-term working-capital loans (us) for specific gaps. Equity is right for a small minority of founders; for the rest it is a tool that looks attractive at the moment of taking it and expensive forever after.
Frequently asked questions
- What is the cheapest source of funding for a UK startup?
- Bootstrapping — funding yourself from revenue and personal savings — carries no interest and no dilution. Where free capital is available, UK government grants (Innovate UK, regional Growth Hubs, the Prince's Trust) are the next cheapest, but competition is fierce and timelines are slow. A Start Up Loan from the British Business Bank (up to £25,000 at 6% fixed with free mentoring) is the lowest-cost borrowing available to most founders.
- Does Credicorp lend to startups?
- Credicorp lends to UK incorporated limited companies and LLPs that have been trading for at least six months. Very early-stage businesses without a trading record do not yet qualify. For pre-revenue founders the Start Up Loan scheme or bootstrapping are the right first steps; Credicorp is the right fit once the company has a trading history and a specific short-term cash gap to bridge.
- What is the difference between equity and a business loan?
- A business loan is repaid with interest — the company keeps 100% of its equity, and there is no ongoing obligation to investors once the loan is cleared. Equity funding sells a share of the company to an investor, meaning future profits and any eventual sale proceeds are shared. Loans suit businesses with a defined, short-term cash gap; equity suits high-growth businesses that need significant capital and are willing to trade ownership for it.