Small business funding: your options explained

Small business funding is any money from outside your day-to-day sales that helps you start or grow: a loan, a grant, an overdraft, a credit card or an investor buying a share. Each comes with a different price, whether that's interest, paperwork or giving up part of the business. This guide explains how the main routes work in the UK, with official figures where they exist, so you can ask the right questions. It isn't financial advice.

By the Business Account Review editorial team · checked 25 October 2026 · How we check

Start with how much you need

Before you look at any small business funding, put a number on the gap. Add up what you'll spend before and after launch, take away what you can cover yourself, and you have a target. Our startup costs guide walks through the sums.

Knowing the figure before you seek small business funding stops two common mistakes: borrowing far more than you need, which costs interest for nothing, and borrowing too little, which leaves you short just as the business needs cash. It also tells you which routes are realistic, because some are built for small sums and others for larger ones.

GOV.UK's business support pages also list self-funding, or "bootstrapping", as a form of small business funding. Using your own savings keeps you in full control and avoids interest, but it puts your personal money at risk if the business struggles.

Small business funding at a glance

Main small business funding routes compared
Small business funding route	Pay it back?	Typical use	Watch for
Start Up Loan	Yes, with fixed interest	Launching or early trading	It's a personal loan, so you're personally liable
Grant	No, if you meet the terms	Specific projects, places or sectors	Competitive, with reporting duties
Bank or lender loan	Yes, with interest	Equipment, growth, larger sums	Credit checks, security, guarantees
Overdraft	Yes, as you use it	Short gaps in cash flow	Variable interest, can be withdrawn
Credit card	Yes, monthly	Everyday purchases, short-term spend	High interest if you don't clear the balance
Equity or crowdfunding	No, but you give up a share	Growth with investor backing	Loss of some control

GOV.UK has a finance and support finder that lets you filter government-backed schemes by type, stage, sector, size and region. It's a sensible first stop for public small business funding, including options for businesses that aren't trading yet.

Start Up Loans: official figures

The Start Up Loans programme is run by the British Business Bank, the government-owned business development bank. It's one of the best-known forms of small business funding for new businesses. According to the British Business Bank and Start Up Loans, checked on 25 October 2026:

£500 to £25,000

The amount you can borrow per person. A single business can receive up to £100,000 in total, for example across several partners or directors.

7.5% fixed

The fixed annual interest rate for applications from 6 April 2026. Loans taken before that date keep their original rate of 6%.

1-5

One to five years

The repayment term. Monthly repayments stay the same because the rate is fixed.

12 months' mentoring

Successful applicants can get free one-to-one mentoring for a year.

To apply, Start Up Loans says you must be 18 or over, live in the UK and have the right to work here, and your business must be UK-based and trading for up to 60 months (five years). That limit was extended from 36 months on 6 April 2026.

The key point about this small business funding is that a Start Up Loan is a personal loan for business purposes. It's unsecured, so you don't put up your home, but you're personally responsible for repaying it even if the business fails. You'll usually need a business plan and cash flow forecast. Check the latest rules on the Start Up Loans website before you apply.

Grants

A grant is small business funding given for a specific purpose that you don't have to pay back. That makes grants the most attractive kind of small business funding, and also the hardest to win. Government business guidance describes them as often lengthy and competitive to apply for, and says you'll usually have to report on how you spent the money.

Most grant-based small business funding is narrow. They may be for a particular region, sector, purpose such as energy efficiency or research, or group of people. Few pay for general startup costs. Some ask you to match the grant with your own money.

Search the GOV.UK finance and support finder and the government's Find a grant service.
Ask your local council and growth hub about local schemes.
Read the eligibility rules in full before you start writing.
Check whether you must spend first and claim back later.
Diary the deadlines for applying, spending and reporting.
Be wary of anyone charging you to "unlock" a grant.

Overdrafts and credit cards

For short gaps rather than big purchases, an overdraft or credit card may be the small business funding you reach for. Both are flexible, and both can get expensive if they become permanent.

As small business funding, overdrafts are tied to your business current account, so availability depends on your provider and your business type. Our research of providers' own pages, checked 25 October 2026, found real differences:

Starling offers arranged overdrafts to limited companies only, not sole traders.
Monzo Business says its overdrafts are only for sole traders, and showed arranged overdraft interest of 29% to 39% a year.
Zempler offers overdrafts on request or by invitation, subject to approval.
Mettle says it doesn't currently offer overdrafts or any lending.
Tide offers access to business loans and other finance from a panel of lenders, subject to status.

If an overdraft is the small business funding you expect to need, check before you open an account. You can compare business bank accounts side by side.

Business credit cards give you a monthly credit limit. If you clear the balance in full, you may pay no interest, depending on the card's terms. If you don't, interest builds fast. Many cards for small companies ask directors for a personal guarantee. Our business credit cards guide explains how they compare with debit cards.

Equity and crowdfunding

Equity means selling a share of your business in return for money. Government business guidance lists crowdfunding, angel investors and venture capital as the main forms. There's no repayment, and investors can bring useful experience, but you give up part of the ownership and some control.

Equity is usually small business funding for companies with plans to grow quickly, not for most sole traders. It normally needs a limited company, because investors receive shares. If you're a sole trader weighing that up, think about the business structure first. Get professional advice before you sign any investment agreement.

Small business funding terms to understand

APR: The annual percentage rate, which includes interest and some fees. Use it to compare loans with each other.
Fixed and variable rates: A fixed rate stays the same for the term. A variable rate can go up or down.
Secured and unsecured: A secured loan is backed by an asset the lender can take if you don't repay. An unsecured loan isn't.
Personal guarantee: A promise that you'll repay a business debt personally if the company can't.
Dilution: Your share of the company getting smaller when new shares are issued to investors.

Getting ready to apply for small business funding

Whatever small business funding route you choose, lenders and grant panels want to see that you understand your numbers. These steps help any application:

1
Write a short business plan
What you sell, who buys it, how you'll reach them, and why you. Our business plan guide has an outline.
2
Build a cash flow forecast
Month by month for at least a year, showing when money comes in and goes out, including repayments.
3
Check your credit file
Most loans involve a credit check. Fix any errors before you apply.
4
Separate your money
A business account with clean records makes your figures easier to prove and your repayments easier to track.

Borrowing is a commitment, and so is any other small business funding with strings attached. If you're unsure whether to take on debt, talk to an accountant, or use free mentoring and support listed on GOV.UK.

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Small business funding FAQs

What is the interest rate on a Start Up Loan?

Start Up Loans says the fixed rate is 7.5% a year for applications from 6 April 2026. Earlier loans keep their original 6% rate.

How much can I borrow with a Start Up Loan?

Between £500 and £25,000 per person, with up to £100,000 for a single business.

Are there grants for starting a business?

Some, but most are for specific places, sectors or purposes. Search the GOV.UK finance and support finder and ask your local council or growth hub.

Can a sole trader get an overdraft?

It depends on the provider, as with most small business funding. Some offer overdrafts only to limited companies, others only to sole traders. Check the provider's own terms.

Do I need a business plan for small business funding?

For most loans and grants, yes. Even where it isn't required, it helps you decide how much to ask for.

Sources

Start Up Loans: changes to interest rate and eligibility
British Business Bank: Start Up Loan guidance
GOV.UK: Finance and support for your business
business.gov.uk: funding options for UK businesses
Starling, Monzo, Zempler, Mettle and Tide: our research of their own pages
All sources checked 25 October 2026.