Non-repayable funding: grants vs loans vs equity

Grants and equity investment are both non-repayable, but they cost you in different ways: a grant ties you to a set purpose and conditions, while equity costs you a share of your company. Loans are the only one of the three you must pay back, with interest, whatever happens to the business. For most UK small businesses, grants are worth checking first, but many cover only part of a project.

What is the difference between grants, loans and equity?

The difference is who carries the risk and what you give up. This table compares the three.

A grant can become repayable if you break its conditions, for example by spending it on something else. Read the offer letter closely.

What counts as non-repayable funding?

Non-repayable funding is money you never have to hand back if you keep to the terms. In the UK that mainly means:

• grants from central government, Innovate UK, local councils, combined authorities and charities
• equity from angel investors, crowdfunding or venture capital
• competition prizes and recognition awards, some of which carry cash

The GOV.UK business finance support finder lists 196 schemes. You can filter by grant, loan, equity or finance, by business stage, by number of employees and by region. Our guide to government grants for small businesses and grants by region list the main ones.

How do grants work?

A grant pays for a defined project or cost, and you report back on how you spent it. Most grants are competitive, and many expect you to fund part of the cost yourself.

Innovate UK, part of UK Research and Innovation, describes itself as the UK’s innovation agency and funds innovative businesses. Its live competitions in November 2026 include DRIVE35, a £150 million scale-up fund for zero emission vehicle technology closing on 27 January 2027. See our guide to Innovate UK grants.

Are grants taxable?

Usually, yes. HMRC’s Business Income Manual at BIM40451 says grants that meet revenue expenditure, such as wages or interest, are normally trading receipts. They are taxed as part of your profits.

Grants that meet capital expenditure, such as machinery, are normally not trading receipts. Instead they reduce the cost on which you can claim capital allowances. Ask your accountant how a specific grant should be booked before you file.

How do government-backed loans work?

A loan must be repaid, but the government backs some schemes for businesses that banks find too new or too small. The Start Up Loans scheme from the British Business Bank lends £500 to £25,000 per person at a fixed 7.5% a year.

You repay over 1 to 5 years with no application or early repayment fees. You must be 18 or over, live in the UK, and be starting a business or have traded for under 5 years. The loan is personal and unsecured, so you pass a credit check. More detail is in our guide to Start Up Loans.

How does equity funding work?

Equity investors buy shares in your company. You never repay them, but they own part of the business and share in any sale or dividends.

Two HMRC schemes make early-stage shares more attractive to investors. GOV.UK guidance, updated 6 April 2026, sets these limits:

For SEIS, the company must be under 3 years old, with gross assets of no more than £350,000 and fewer than 25 employees. For EIS, the limits are fewer than 250 employees and gross assets of no more than £30 million before the share issue. Our SEIS and EIS guide covers advance assurance.

Which applies to you?

Use this as a starting point:

• If you have a clear project with a public benefit, such as research, net zero or hiring, look for grants first.
• If you need under £25,000 to start or grow and can repay monthly, compare a Start Up Loan with bank lending.
• If you need a large sum, expect to grow fast and are willing to share ownership, consider equity with SEIS or EIS.
• If a grant needs match funding, pair it with a loan or your own cash.

What to do now

1. Search the GOV.UK finance support finder using your region and size.
2. Cost your project and note what share a grant would need to cover.
3. Check the tax treatment with your accountant before you accept a grant.
4. If you plan to raise equity, apply for SEIS or EIS advance assurance first.

Frequently asked questions

Is equity funding non-repayable?

Yes. Equity investors do not get their money back as repayments; they own shares and gain only if the company pays dividends or is sold.

Do I have to pay tax on a business grant?

Usually. HMRC normally treats grants that pay for revenue costs as taxable trading receipts. Capital grants reduce the expenditure you can claim capital allowances on instead.

Can a grant ever have to be paid back?

Yes. If you break the conditions, for example by spending the money on something else or not delivering the project, the funder can ask for it back.

What is the interest rate on a Start Up Loan?

GOV.UK states a fixed annual rate of 7.5%. You can borrow £500 to £25,000 and repay over 1 to 5 years.

How much can a company raise under SEIS?

Up to £250,000 over its lifetime. Investors can claim Income Tax relief of 50% of the amount they invest, up to £200,000 a year.