16 Aug 2023

Funding a Startup: What are the options?

Chris Stuttle
Senior Consultant

Whether you are excited or terrified to start the journey of getting your startup to become a reality, don’t forget that you aren’t alone. Though starting a new business is no picnic, there are ways that you can get startup funding and potential investors to help you get the ball rolling. It can be daunting in the early stages to know where to start looking for funding and what options will best suit you and your business model. Below we have listed the various ways that can help fund your new startup business. 


Business Lines of Credit

A business line of credit (LOC) is a good option for new SME’s (small and medium enterprises) as they are a revolving loan that allows a fixed amount of capital. LOCs are also a longer-term option, which can help as an ongoing way of covering things like stock costs. Every time you repay what you have drawn or what you owe, the available credit is replenished. 

When using an LOC, you will only pay interest when you have an outstanding balance, which is why LOCs are so appealing to small businesses, since they aren’t too much of a financial burden. As they are easier to pay back, an LOC can be particularly good when used to meet short-term business needs such as new inventory, repairing equipment, marketing, and covering a seasonal dip in cash. 

If you are considering using an LOC, here are the two different types that are available: 

  • A Secured Business LOC will require the business to pledge short-term assets as collateral to secure the line. Lenders typically ask for assets such as accounts receivable and inventory but do not tend to require capital assets such as property or equipment. The lender will then become the owner of any and all collateral if the business cannot pay off the balance. 
  • An Unsecured Business LOC does not require assets as collateral, but instead, a general lien and personal guarantee will be needed. This will mean that the business will likely need a stronger credit profile and a positive business track record to qualify, as there is no collateral to fall back on. It is also likely that interest rates will be higher, and the amount you can borrow is smaller.


Startup Loans

If you already have a good credit history and a low debt-to-credit ratio, a small business loan could be a great option to finance your new startup. They have become quite popular for new business ventures, however, the main drawback is the time it takes to receive your bank loan. It will most likely take several weeks for the money to arrive in your account, so if you are on a time crunch, this option might not be the best fit for you. 

Another thing to consider is that due to the pandemic loans are harder to come by, and if you need larger amounts of money quickly, a startup loan could be tricky to get. You can however have a look online to compare rates, find the best deals and see whether you can find a good fit.


Venture Capitalists and Angel Investors 

Venture capital and angel investors tend to be popular options for the more ambitious entrepreneurs, as they can grow their business pretty fast and even gain more elite mentorship. Angel investors typically enter the scene in the beginning stages of a business and only work on a smaller scale. Venture capital firms, on the other hand, tend to be more concerned with already established businesses who will be needing larger sums of money to expand further.

Both of these options have more value than just getting financial support. Many companies will benefit from the mentorship support they will also receive. Having financial backers on your side who know the business world and can spot a startup with potential is a huge asset in this industry. Your business could have the extra support behind the scenes that many other startups might not have, which will help you navigate the industry better and improve your business plan. 

It’s important to note that both venture capitalists and angel investors are extremely sought after, so the competition to win them over will be fierce, and you might not receive the exact investment terms that you want. 


Crowdfunding & Peer-to-peer Lending 

It can be difficult to find the right investor, which is why crowdfunding and peer-to-peer (P2P) lending should never be overlooked. This way of financing has skyrocketed in popularity for British SME’s and if you get it right, you not only can receive large amounts of funding fairly quickly, but you can also get your brand name out into the industry. One of the main benefits that many will already know is that the money is yours, therefore you make the decisions on how you use it to grow your business. 

Some investors can have specific wants for your business moving forward, meaning that you could end up veering in a different direction than you had planned. This is exactly why many SME’s have started more crowdfunding projects so that they can keep their business the way they want and move forward in the way they best see fit.


Grants and R&D Tax Credits

Grants are one of the most sought-after finance options for new and well-known businesses, as they can give startups a huge leg up in the industry. One of the main benefits of receiving a grant is the fact that you do not need to pay it back! Each grant will however come with different terms depending on the type of grant, and how it will be used. There are hundreds of business grant types on offer and they are constantly changing, so it’s worth keeping up to date with what is available!

The main negatives with grant funding are that they are not only extremely sought after and the competition is fierce, but also they take time. Just like business loans, it will take time to apply and receive the grant for your business, so if you are on a time crunch, this might not be the best option. 

R&D Tax Credits are definitely a rising star when it comes to financing new innovation within a company. As every company will need to partake in R&D many times for new innovation, R&D Tax Credits are a government-backed tax incentive which can reduce a company’s corporation tax bill. Whether you are a small or larger business, R&D tax relief is available under the SME and RDEC schemes.

R&D tax relief and government grants can help fund any projects that use R&D to create or upgrade products, services or processes within the company. You can even claim back relief for any past R&D projects up to two years from the end of your accounting period. R&D tax relief particularly benefits small businesses or SME’S who can claim back as much as 33% pre-April 2023 or 22% after April 2023 of eligible research and development costs under the SME scheme. Have a look at the HMRC website to find out more about the expenses you can claim for. 


What’s Next?

If you are new to the business world, getting a startup business up and running can be very challenging. At TBAT Innovation our aim is to help businesses access funding all across the board, enabling them to grow and expand. We are a leading consultancy with a skilled and experienced team of professionals who work with technology/research and development organizations all over the UK. 

By helping you access grant funding and private investments, you will have the freedom to create new products, services and processes, or even improve upon already existing ones. In collaboration with your accountant, we can also help by providing grant claim management support and applying for your R&D tax credits. This will allow you to continue your future development seamlessly, having the necessary funds to support R&D projects, furthering your advances in your field. 

To find out more about how TBAT can help, contact our team and visit our website today! 



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