Key takeaways
- Business finance falls into two main groups: debt, which you repay with interest, and equity, where you sell a share of the company.
- Government Start Up Loans offer £500 to £25,000 at a fixed 7.5% a year over 1 to 5 years, with up to 12 months of free mentoring.
- The Growth Guarantee Scheme supports lending of up to £2 million per business group for UK firms with turnover of no more than £45 million.
- From 6 April 2026 most companies can raise up to £10 million a year and £24 million in total under the Enterprise Investment Scheme.
- Investors get 50% income tax relief under SEIS, 30% under EIS and 20% under a VCT.
- A company can raise up to £250,000 through SEIS if it has fewer than 25 employees and gross assets of £350,000 or less.
- The Bank of England raised Bank Rate to 4% on 5 November 2026, which feeds through to the cost of variable rate business borrowing.
The main types of business finance in the UK are loans, overdrafts, asset finance, invoice finance, equity investment, crowdfunding and grants. Debt is repaid with interest and you keep ownership; equity brings in cash in return for a share of the company. The right choice depends on what the money is for, how fast you need it and how much control you want to keep.
What are the main types of business finance?
Business finance splits into debt, equity and non-repayable funding, as this table shows.
| Type | How it works | Often used for |
|---|---|---|
| Term loan | Lump sum repaid monthly with interest | Expansion, equipment, refits |
| Overdraft | Flexible borrowing on your current account | Short-term cash gaps |
| Asset finance | Hire purchase or leasing of equipment | Vehicles, machinery, IT |
| Invoice finance | Advance against unpaid invoices | Firms with slow-paying customers |
| Equity | Sell shares to investors | Start-ups and fast growth |
| Crowdfunding | Raise from many people online | Consumer brands, early stage |
| Grants | Funding you do not repay | Innovation, regional growth |
Debt finance: loans, overdrafts and asset finance
Debt finance is money you borrow and repay with interest, keeping full ownership. Lenders look at trading history, profits, credit record and security.
- Term loans run for a fixed period, often 1 to 10 years. Rates can be fixed or variable. Compare lenders in our guide to business loans.
- Overdrafts suit short gaps between paying suppliers and getting paid. They are usually repayable on demand.
- Asset finance spreads the cost of equipment. With hire purchase you own the asset at the end; with a lease you usually do not.
- Invoice finance releases cash tied up in unpaid invoices, through factoring or invoice discounting. See our invoice finance guide.
Variable rate borrowing tracks the Bank of England’s Bank Rate, which rose from 3.75% to 4% on 5 November 2026. The next decision is due on 17 December 2026.
Government-backed finance
The government supports lending to small firms through the British Business Bank. Two schemes matter most.
Start Up Loans. GOV.UK offers loans of £500 to £25,000 at a fixed 7.5% a year over 1 to 5 years. You must be 18 or over, live in the UK and have a business trading for less than 5 years. Successful applicants get up to 12 months of free mentoring. Read more on Start Up Loans.
Growth Guarantee Scheme. The Growth Guarantee Scheme supports term loans, overdrafts, asset finance and invoice finance of up to £2 million per business group. Your turnover must be no more than £45 million and over 50% of it must come from trading. You apply through an accredited lender, not the government. The borrower stays fully liable for the debt.
Equity finance and investor tax reliefs
Equity finance means selling shares to investors such as business angels, venture capital funds or friends and family. You do not repay the money, but you give up part of the ownership and future profits.
UK tax reliefs make small company shares more attractive to investors. These figures are from HMRC’s investor relief guidance, updated 6 April 2026.
| Scheme | Investor income tax relief | Investor annual limit |
|---|---|---|
| SEIS | 50% | £200,000 |
| EIS | 30% | £1 million (£2 million for knowledge-intensive) |
| VCT | 20% | £200,000 |
On the company side, a business can raise up to £250,000 through SEIS if it has fewer than 25 employees and gross assets of no more than £350,000. Under HMRC’s EIS rules, most companies can raise £10 million a year and £24 million in total from 6 April 2026, with fewer than 250 employees. See our guide to SEIS and EIS for founders.
Crowdfunding
Crowdfunding raises money from many people through an online platform. The Financial Conduct Authority describes four types:
- Loan-based (peer-to-peer): people lend to your business for interest. FCA regulated.
- Investment-based: people buy shares in your business. FCA regulated.
- Rewards-based: backers pay upfront for a product or perk. Not FCA regulated.
- Donation-based: people give without any return. Not FCA regulated.
Grants
Grants are funding you do not repay, usually for innovation, net zero or regional growth. They are competitive and often need match funding. Our guide to government grants for small businesses explains where to look.
Which type of finance applies to you?
Match the finance to the need. Use this decision list as a starting point.
- If you are starting out with no trading history, look at Start Up Loans, savings, friends and family, or SEIS investment.
- If you need equipment or vehicles, asset finance spreads the cost over the asset’s life.
- If customers pay slowly, invoice finance turns unpaid invoices into cash.
- If you have a short, seasonal cash gap, an overdraft is usually cheaper than a loan.
- If you are growing fast and need large sums, equity, with SEIS or EIS relief for investors, may suit.
- If you are profitable and want to keep control, a term loan, possibly under the Growth Guarantee Scheme, keeps ownership with you.
Before you apply, check how much you need with our breakeven calculator and a cash flow forecast.
What to do now
- Work out the amount and purpose. Lenders and investors expect a clear plan.
- Get your accounts up to date. Most applications need recent accounts and management figures.
- Compare total cost, including fees, not just the interest rate.
- Ask your accountant about SEIS or EIS advance assurance before you talk to investors.
Frequently asked questions
What is the difference between debt and equity finance?
Debt finance is borrowed money you repay with interest, keeping full ownership. Equity finance is money from investors in return for shares, so you give up part of the company but have nothing to repay.
How much can I borrow with a Start Up Loan?
You can borrow £500 to £25,000 at a fixed 7.5% a year, repaid over 1 to 5 years. Your business must have been trading for less than 5 years.
What is the Growth Guarantee Scheme?
It is a government-backed scheme run by the British Business Bank that supports lending of up to £2 million per business group. Firms must have turnover of no more than £45 million and apply through an accredited lender.
How much can a company raise through SEIS?
A company can raise up to £250,000 through SEIS. It must have fewer than 25 employees and gross assets of no more than £350,000 when the shares are issued.
Is crowdfunding regulated in the UK?
Loan-based and investment-based crowdfunding are regulated by the Financial Conduct Authority. Rewards-based and donation-based crowdfunding are not.
Sources
Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.