How to Get Funding for a Business in the UK

Getting funding for a business starts with understanding how much money you need, what you need it for and which type of finance is appropriate for your circumstances.

You then need to demonstrate to a lender or investor that the business is commercially viable and that the proposed funding makes sense.

For an established company, this will usually mean providing evidence of financial performance, cash flow and the ability to support the funding. If you're buying a business, funders may also assess the financial strength of the company you're acquiring.

This guide explains how to get business funding in the UK, from calculating your funding requirement and comparing finance options to preparing your application and approaching suitable funders.

How Do You Get Funding for a Business?

The process of getting business funding can generally be broken down into seven steps:

1. Decide what the funding is for
2. Calculate how much funding you need
3. Assess how much the business can realistically afford
4. Choose the right type of business finance
5. Check your funding eligibility
6. Prepare the financial information and supporting evidence
7. Approach suitable funders and compare their offers

The exact process will depend on whether you are applying for a business loan, raising equity investment, applying for a grant or arranging another form of business finance.

However, good preparation is important whichever route you choose.

1. Decide What You Need the Funding For

Before approaching lenders or investors, define exactly why the business needs additional capital.

Business funding can be used for many purposes, including:

• Buying an existing business
• Expanding into a new location
• Purchasing machinery or equipment
• Recruiting employees
• Increasing stock
• Supporting working capital
• Funding marketing
• Developing a new product
• Acquiring another company
• Refinancing existing debt
• Improving short-term cash flow

The purpose of the funding matters because different requirements are suited to different types of finance.

For example, asset finance may be appropriate for purchasing machinery, while invoice finance could be more suitable for a company experiencing cash flow pressure because customers take a long time to pay.

An acquisition is different again and may require a combination of buyer capital, commercial lending, seller finance and other sources of funding.

The clearer you are about the purpose, the easier it becomes to identify suitable funding options.

2. Work Out How Much Business Funding You Need

Once you know what the money will be used for, calculate the amount required.

Avoid simply applying for the largest amount you think you might be able to borrow.

Instead, build the funding requirement from the underlying costs.

For example, a business expansion project might involve:

The business may then decide to contribute £80,000 from its own cash reserves, leaving an external funding requirement of £150,000.

This produces a much clearer proposition for a lender than simply requesting £150,000 without explaining where the figure came from.

Include a contingency where appropriate

Projects rarely go exactly to plan.

Depending on what the funding is for, it may be sensible to build an appropriate contingency into your calculations rather than leaving the business with insufficient capital if costs increase.

However, any contingency should be reasonable and clearly explained.

Read How Much Business Funding Can You Get? for more information about calculating funding requirements and borrowing capacity.

3. Consider What the Business Can Afford

The amount you need is not necessarily the same as the amount the business can afford to borrow.

If you are using debt finance, the business will need sufficient cash flow to meet:

• Capital repayments
• Interest
• Fees
• Existing borrowing
• Normal operating expenditure
• Tax liabilities
• Planned investment

A lender will want confidence that repayments remain affordable after the funding has been provided.

You should therefore consider how repayments would affect the company's cash flow under both expected and less favourable conditions.

Don't build your funding plan around the best-case scenario

If the business can only afford its repayments when revenue and profit reach the most optimistic forecast, the funding structure may be too aggressive.

Consider what happens if:

• Sales are lower than expected
• Costs increase
• A major customer leaves
• Margins fall
• Interest costs change
• Growth takes longer than expected
• Unexpected expenditure arises

The objective should not simply be to obtain as much funding as possible.

It should be to secure enough capital to achieve the business objective without creating unnecessary financial pressure.

4. Choose the Right Type of Business Funding

Once you understand the requirement, consider which funding route best matches it.

The main business financing options include:

Business loans

A business borrows a fixed amount and normally repays the capital plus interest over an agreed period.

Loans can be used for growth, investment, working capital and acquisitions.

Equity finance

An investor provides capital in return for shares in the business.

There are normally no conventional loan repayments, but the existing owners give up part of their ownership.

Asset finance

Asset finance is used to fund equipment, machinery, vehicles and other eligible business assets.

It can help businesses avoid using significant amounts of cash to purchase assets outright.

Invoice finance

Invoice finance allows qualifying businesses to release money tied up in unpaid customer invoices.

It is often used to improve cash flow and working capital.

Working capital finance

Working capital facilities provide funding for everyday operating requirements such as payroll, stock and supplier payments.

Business grants

Eligible companies may be able to access grants or other government-backed support for certain projects, industries or regions.

Acquisition finance

If you're buying an established business, funding may involve a combination of commercial debt, your own capital, seller finance, equity investment or other finance facilities.

Read Types of Business Funding: Which Option Is Right for You? for a full comparison of the main funding routes.

5. Check Whether You Are Likely to Qualify

Different lenders and investors use different criteria, so there is no universal set of requirements for business funding.

However, common factors include:

• Trading history
• Turnover
• Profitability
• Cash flow
• Existing borrowing
• Credit history
• Available security
• Industry
• Management experience
• Purpose of the funding
• Amount requested

For borrowing, lenders will usually focus heavily on whether the business can service the proposed debt.

For equity finance, investors may instead place greater emphasis on growth potential, valuation, management and the likely return on their investment.

Established businesses

An established company can normally provide historic financial information showing how it has performed over time.

A consistently profitable business with reliable cash generation may therefore have a stronger case for certain types of commercial borrowing.

Start-ups

A new company has little or no trading history.

Funders may consequently place more emphasis on:

• The business plan
• Founder experience
• Financial projections
• Market research
• Personal investment
• Creditworthiness
• Evidence of customer demand

Read Business Funding Requirements: What Will You Need to Apply? for a detailed explanation of common eligibility criteria.

6. Prepare the Information a Funder Will Need

Being well prepared can make the funding process considerably easier.

The documents required will vary depending on the finance provider and the type of funding, but an established business may be asked for:

• Statutory accounts
• Recent management accounts
• Business bank statements
• Cash flow forecasts
• Profit and loss forecasts
• Details of existing borrowing
• Information about company assets
• Details of shareholders and directors
• Business plan
• Explanation of how the funding will be used

Lenders may also carry out credit checks and request information about directors or shareholders.

Make sure your financial information is current

Historic accounts are important, but a lender may also want to understand what has happened since the most recent year-end.

Up-to-date management accounts can therefore help provide a more current view of:

• Revenue
• Gross profit
• Operating profit
• Cash
• Debtors
• Creditors
• Current trading performance

If recent performance differs significantly from previous years, be prepared to explain why.

Prepare realistic forecasts

Forecasts should show how you expect the business to perform after receiving the funding.

They may include:

• Revenue
• Gross margin
• Operating costs
• Profit
• Cash flow
• Debt repayments

The assumptions behind the figures are often as important as the numbers themselves.

For example, if your forecast assumes a 40% increase in sales, be prepared to explain how that growth will be achieved.

Read How to Prepare a Strong Business Funding Application for a full application checklist.

7. Find Funders That Match Your Business

Not every finance provider funds every type of business.

Approaching lenders indiscriminately can therefore be inefficient.

Before applying, consider whether the funder typically works with businesses that match your:

• Sector
• Size
• Trading history
• Funding requirement
• Purpose
• Risk profile

A business seeking £50,000 of working capital requires a very different funding solution from an established company seeking £2 million to acquire a competitor.

Potential sources of funding include:

• High street banks
• Challenger banks
• Specialist commercial lenders
• Asset finance providers
• Invoice finance providers
• Private credit providers
• Angel investors
• Venture capital firms
• Private equity firms
• Government-backed schemes

The UK Government's Finance and Support for Your Business service can also be used to search publicly funded finance, loan, equity and grant schemes according to factors including business stage, industry and region.

8. Prepare a Clear Funding Proposal

Once you know which funders you intend to approach, make the proposition easy to understand.

A strong funding request should answer several basic questions:

Who are you?

Explain the company, its ownership and the experience of the management team.

What does the business do?

A lender should be able to understand how the company makes money and who its customers are.

How much money do you need?

Provide a specific funding requirement.

What will the money be used for?

Explain exactly where the capital will go.

Why does the funding make commercial sense?

Show how the finance supports the business.

How will the lender be repaid?

If applying for debt funding, demonstrate that future cash flow can comfortably support repayments.

What could go wrong?

Acknowledging risks can make an application more credible than pretending none exist.

Explain how significant risks will be managed.

9. Submit the Funding Application

The formal process will differ by provider.

For a straightforward business loan, you may be able to submit much of the application online.

Larger or more complex funding requirements may involve discussions with the lender, additional financial analysis and several rounds of information requests.

A funder may then carry out:

• Credit checks
• Financial analysis
• Affordability assessments
• Security valuations
• Director checks
• Due diligence
• Legal review

For larger commercial funding arrangements, an initial offer may also be subject to further due diligence and conditions before funds can be drawn.

Provide requested information accurately and respond to questions promptly.

Inconsistencies or missing information can delay an application and potentially reduce a funder's confidence in the proposal.

10. Compare Business Funding Offers Carefully

Getting an offer is not the end of the process.

If you have more than one funding option available, compare the complete terms rather than simply choosing the lowest advertised interest rate.

Consider:

• Amount provided
• Interest rate
• Arrangement fees
• Legal fees
• Valuation fees
• Repayment period
• Repayment frequency
• Total cost
• Security requirements
• Personal guarantees
• Financial covenants
• Early repayment charges
• Flexibility
• Conditions attached to the funding

A slightly more expensive facility may sometimes provide better flexibility or terms.

Equally, a lower headline interest rate may become less attractive once fees and other requirements are included.

Read Business Funding Costs: Interest Rates, Fees and Total Cost for more information.

How to Get Funding to Buy a Business

Getting funding to purchase an established business is slightly different from raising money for ordinary business expenditure.

Because the target company already exists, funders can assess its historical financial performance.

When considering acquisition finance, lenders may examine:

• Historic accounts
• Adjusted EBITDA
• Cash flow
• Existing debt
• Customer concentration
• Management structure
• Sector risks
• The purchase price
• Your experience
• Your personal capital contribution
• How the transaction is structured

Valius' guide to financing a business purchase explains the main finance options available to buyers. Lenders considering an acquisition will typically assess both the target business's ability to support debt and the buyer's experience and contribution.

How acquisition funding can be structured

You do not necessarily need to finance the entire purchase price from one source.

For example:

Business purchase price: £1,000,000

• Buyer capital: £200,000
• Acquisition loan: £500,000
• Deferred consideration: £300,000

Total: £1,000,000

The exact structure will depend on the transaction and should not be assumed to be achievable simply because the figures add up.

A lender still needs to be comfortable that the company can support the proposed debt.

Our guide to debt-funded business purchases explains how factors such as cash flow, EBITDA, leverage and affordability can affect the amount of acquisition debt available.

How Can You Improve Your Chances of Getting Business Funding?

You cannot guarantee that a funding application will be approved, but you can make the proposition stronger.

Keep financial records up to date

Accurate accounts and current management information make it easier for a funder to assess the company.

Understand your numbers

Be prepared to explain revenue, margins, cash flow, profitability, debt and forecasts.

Make the purpose clear

A specific funding requirement supported by evidence is generally more compelling than a vague request for additional capital.

Request a realistic amount

The amount should reflect both what the business needs and what it can reasonably support.

Demonstrate your own commitment

Depending on the funding type, lenders or investors may want to see that owners are financially committed to the project.

This is particularly relevant in business acquisitions, where buyers are commonly expected to contribute some of their own capital.

Address weaknesses rather than hiding them

If revenue recently fell, a major customer was lost or cash flow has been under pressure, explain what happened and what has changed.

Funders may identify these issues during their analysis anyway.

Choose the right provider

A rejection from one lender does not necessarily mean every lender will make the same decision.

Funding criteria and risk appetite differ between providers.

However, repeatedly applying without addressing an underlying weakness may not improve the position.

Why Might You Struggle to Get Business Funding?

Common issues that can affect funding applications include:

• Limited trading history
• Weak profitability
• Insufficient cash generation
• High existing debt
• Poor credit history
• Inadequate financial records
• An unrealistic funding request
• Limited security
• Weak forecasts
• Lack of relevant management experience
• Unclear use of funds
• Business or sector risk

If an application is rejected, try to understand the reason before immediately submitting the same proposition elsewhere.

There may be something that can be improved, or another type of funding may be more appropriate.

Read Why Business Funding Applications Are Rejected for a closer look at common reasons for declined applications.

How Long Does It Take to Get Business Funding?

There is no standard funding timescale.

The process depends on factors including:

• Type of finance
• Amount required
• Complexity of the application
• Quality of the information provided
• Whether security needs to be valued
• Whether legal documentation is required
• The funder's internal approval process

A relatively straightforward finance application may be quicker than a complex acquisition involving several lenders, extensive due diligence and legal documentation.

If funding is required by a particular date, begin the process early rather than relying on the fastest advertised completion time.

Can You Get Business Funding Without Security?

Potentially.

Both secured and unsecured forms of business finance are available.

With secured finance, the lender has security over specified assets or other collateral.

Unsecured business finance does not rely on security over a specific asset in the same way, although lenders may still request a personal guarantee from directors.

The availability and terms of unsecured funding will depend on factors including the business's financial strength, cash flow, trading history and credit profile.

Read Secured vs Unsecured Business Finance: Key Differences for a detailed comparison.

Do You Need a Personal Guarantee to Get Business Funding?

Not necessarily, but personal guarantees are common in some forms of business lending.

A personal guarantee can make an individual personally responsible for some or all of a company's borrowing if the business cannot repay it, subject to the terms of the agreement.

Directors should therefore understand exactly what they are agreeing to and consider taking appropriate professional advice.

Read Personal Guarantees for Business Funding: What Directors Need to Know for more information.

Getting Business Funding: A Simple Checklist

Before approaching a lender or investor, make sure you can answer the following:

• Why do I need funding?
• How much do I need?
• How have I calculated that amount?
• Which funding option is appropriate?
• Can the business afford the commitment?
• Do I meet the likely eligibility requirements?
• Are my accounts and management information up to date?
• Have I prepared realistic forecasts?
• Can I clearly explain how the funding will be used?
• Have I identified funders that suit my circumstances?
• Do I understand the total cost?
• Am I comfortable with any security or personal guarantees?
• What happens if the business performs below forecast?

The better prepared you are before approaching funders, the easier it is to present a clear and credible proposition.

Funding Your Next Stage of Business Growth

Getting funding for a business is not simply about finding somebody willing to provide capital.

The funding needs to be appropriate for the objective, affordable for the company and structured in a way that supports the business after the money has been provided.

Start by understanding exactly what you need, then assess your finances, compare suitable funding routes and prepare the evidence a lender or investor is likely to require.

If you're looking specifically for funding to acquire an established company, understanding your potential funding capacity early can also help you focus your search on businesses you can realistically purchase.

Explore our Business Funding Guide for an overview of the wider funding landscape, or read our How to Buy a Business in the UK guide to understand how finance fits into the complete acquisition process.

Find and Fund Your Next Business with Valius

If your reason for exploring business funding is to buy an established company, getting clear on your potential funding position early can help you search more strategically.

At Valius, we help buyers move from simply wanting to own a business to finding and progressing real acquisition opportunities.

Through Valius, you can explore carefully curated businesses for sale while accessing practical guidance around valuation, due diligence, deal structure, funding and the wider acquisition process.

Understanding how much capital you can contribute, what level of debt a target business may be able to support and whether seller finance or deferred consideration could form part of the deal can all influence the businesses you should be looking at.

Rather than finding the perfect business first and worrying about finance later, building an understanding of your funding capacity can help you focus on opportunities that are both commercially attractive and realistically achievable.

Ready to start looking for your next business?

Browse Businesses for Sale or Create Your Free Valius Account and start exploring acquisition opportunities today.