Business funding in the UK comes in three broad forms: debt (bank loans, overdrafts, asset and invoice finance), equity (selling shares, often with SEIS or EIS tax relief for the investor) and grants. The main government-backed routes in 2026/27 are the Start Up Loan (£500 to £25,000 at a fixed 7.5%) and the Growth Guarantee Scheme (up to £2 million per business group, with a 70% government guarantee to the lender), and Budget 2026 announced a further £5 billion of capacity for the British Business Bank.
The main types of business funding
The right mix depends on what the money is for, how predictable cash flow is, and how much ownership the founders will give up.
| Type | What it is | Best suited to | Main cost |
|---|---|---|---|
| Term loan | A fixed sum repaid in instalments over a set term | Assets, acquisitions, planned growth | Interest and fees; often a personal guarantee |
| Overdraft or revolving facility | A limit drawn and repaid as needed | Short-term working capital | Interest on the drawn balance; arrangement fees |
| Asset finance | Hire purchase or leasing secured on the equipment or vehicles funded | Machinery, vehicles, IT | Interest built into the rentals |
| Invoice finance | Advances against unpaid customer invoices | Businesses with long customer payment terms | Discount charge and service fee |
| Equity | Selling new shares to investors | Early-stage or fast-growing companies without the cash flow to service debt | Dilution of ownership and future dividends |
| Grants | Non-repayable funding for a defined project | Innovation, regional and sector programmes | Application effort and conditions on use |
Our guide to business loans covers the borrowing options in more depth, and small business grants explains where grants are found and how they are taxed.
Government-backed schemes
- Start Up Loans. A government-backed loan of £500 to £25,000 to start or grow a business that has been fully trading for less than 5 years. It is "an unsecured personal loan", so the individual borrows and must pass a credit check. The rate is a fixed 7.5% a year over 1 to 5 years, with no application or early repayment fee and up to 12 months of free mentoring;
- Growth Guarantee Scheme. Administered by the British Business Bank, it supports term loans, overdrafts, asset finance, invoice finance and asset-based lending of up to £2 million per business group through accredited lenders. The business must trade in the UK, have turnover of no more than £45 million and earn more than 50% of turnover from trading. The 70% guarantee is given to the lender to cut its credit risk; the business still borrows and repays the full amount;
- UK Export Finance. Exporters can get bank facilities backed by a partial government guarantee, such as the General Export Facility for trade finance facilities of up to around £25 million.
In July 2026 the government announced that the Growth Guarantee Scheme turnover limit will rise to £54 million and the maximum loan term from six to 10 years for loans of up to £1.1 million. GOV.UK still shows the £45 million limit, so check with the lender whether the change has taken effect.
What Budget 2026 announced
Budget 2026, published on 28 October 2026, announced an additional £5 billion of capacity for the British Business Bank, taking its total financial capacity to £30.6 billion. The Budget says this will deliver:
- Growth Guarantee Scheme. A £6.5 billion expansion of guaranteed SME lending over this Parliament;
- Equity. £1.4 billion of new investment commitments in commercial equity, invested through funds backing high-growth businesses;
- Venture debt. £450 million to launch a new venture debt product, described as "non-dilutive finance to innovative firms";
- Community lenders. £165 million of funding for community lenders across the UK.
The Budget also announced a new UK Export Finance guarantee, delivered jointly with the British Business Bank, for SMEs that export or intend to, to launch in 2027. Terms and start dates will follow at launch.
Equity funding and SEIS/EIS
Equity investors take shares instead of interest, so there are no repayments, but the founders own less of the company. Many UK early-stage rounds are built around the venture capital tax reliefs.
| 2026/27 | SEIS | EIS |
|---|---|---|
| Investor income tax relief | 50% | 30% |
| Investor annual limit | £200,000 | £1 million (£2 million if at least £1 million goes into knowledge-intensive companies) |
| Company fundraising limit | £250,000 in total | £10 million in any 12 months; £24 million lifetime (most companies) |
| Company size | Gross assets up to £350,000; fewer than 25 full-time equivalent employees | Gross assets up to £30 million before the issue and £35 million after; fewer than 250 employees |
| Minimum holding period | 3 years | 3 years |
Budget 2026 announced "a small number of technical changes" to SEIS, EIS and Venture Capital Trusts in Finance Bill 2026-27 to make them easier to use. Our guide to EIS tax relief explains the conditions in detail.
How funding is taxed
The tax treatment differs sharply between debt and equity. A company can deduct loan interest from trading profits, because the debits on a trading loan "are treated as expenses of the trade". Dividends paid to shareholders are not deductible: "no deduction is allowed in respect of a dividend or other distribution". Repaying the capital of a loan is not an expense either. Grants follow the capital or revenue split: HMRC treats grants that meet revenue costs as normally trading receipts, while grants towards capital assets are normally not, but reduce the expenditure qualifying for capital allowances.
Worked example: the cost of a Start Up Loan
A founder borrows the maximum £25,000 Start Up Loan at the fixed 7.5% over the maximum 5 years. Assuming 60 equal monthly repayments:
- Monthly repayment. About £501;
- Total repaid. About £30,057;
- Total interest. About £5,057; over 3 years it would be about £2,996.
The loan is personal, so the founder owes it even if the business fails. If the money is passed into a limited company, record whether it goes in as a director's loan or as share capital, as our guide to lending money to your own company explains. Our effective interest rate calculator helps compare offers with different fee structures.
Primary sources: GOV.UK on Start Up Loans, the Growth Guarantee Scheme, the July 2026 announcement, venture capital scheme reliefs, the EIS and SEIS company rules, Budget 2026, CTA 2009 s297 and s1305.
Funders decide on the numbers, so a credible forecast matters. Our financial modelling team builds the forecasts funders ask for, and our EIS and SEIS advisers handle advance assurance and compliance for equity rounds.