Do you remember Susie Ma from the Apprentice? She was the same year as Tom, the shy inventor of the curved nail-file. She has not only bought out Lord Sugar’s half of the business, but recently paid herself £2 million in dividends. Furnitureblock recently achieved £1 million from Barclays Bank to super-charge their growth into the US market.
Amid these huge numbers, many small and growing businesses are chasing that dream: securing that game-changing investment to fuel growth and turn a vision into reality.
Sometimes companies end up chasing growth for the sake of growth rather than thinking about profit.
I attended the BPIC’s Kickstart programme a few weeks ago and our group of new business owners were shown a slide with a list of all the options available. There were a few things on there I’d never considered and, since then, I’ve been wondering how it all works. So, let’s find out what the funding landscape actually looks like.
Perhaps the most obvious place most of us think of for securing additional money is our bank – whether it be a loan or an overdraft facility. However, the UK Government, via the British Business Bank, also supplies Start Up Loans to small businesses. Funding Circle, a platform for peer to peer lending also offer loans to businesses. Finally, you can get large amounts of credit in the form of a credit card from Capital on Tap.
A couple more debt financing options are Asset Finance. This form of borrowingaccepts your business’ physical or intangible assets (think IP or patents) as collateral to obtain the finance. Asset finance has the highest recorded approval rate among debt types, at 96%.
Last but not least is Invoice Finance, where you sell your unpaid invoices off to a third party to collect and, in return, they advance up to 90% of the uncollected payment, then go and collect the whole payment themselves.
Debt financing is generally best suited for businesses that have predictable revenue streams and tangible assets, such as manufacturing, retail, or established service businesses. It is typically less suitable for companies in the early stages, such as pre-revenue startups or R&D-intensive firms. The average success rate for SME lending sits at 50%.
Amity Brew Co is a local craft brewery, offering a range of draught and canned beers. They provide tours of the brewery, an outside terrace, inside bar and weekly events for the community. They also have their own merch for sale. The three directors took out their loans in April 2020, at £25,000 each. The Start Up Loans funding aided the business in opening its first bar and brewery in Farsley and contributed to purchasing a canning line and recruiting new team members.
As of May 2025, Amity Brew Co is expanding its operations, recently securing a £150,000 investment from Finance Yorkshire for a new production facility in Bradford.
Debt Finance Examples (October 2025)
To most of us, our greatest exposure to this type of funding is Dragon’s Den. A business seeking investment offer a percentage of ownership in their business for a cash injection. I’m sure we’ve all found ourselves watching and wondering how the seemingly naive business owner came up with that million pound valuation.
The Dragons, and Lord Sugar from the Apprentice, are Angel Investors, bringing their own personal fortunes (in piles of £50 notes) to spend on whomever they see the potential in. Along with the percentage of the business comes the influence they can have on the decisions and investments the business itself goes on to make. The ideal scenario is that 5 – 10 years down the line, the business can be sold on at a much higher value and their percentage of that value is paid back to them.
Venture Capitalists tend to invest larger sums (£250,000 or more) of other people’s money. They will get more involved in the running of the business they invest in, sometimes taking a seat on the board and advising on the business’ core strategy.
Also under this header comes friends and family, the Bank of Mum and Dad. Crowdfunding (Crowdcube, Seedrs) is another equity-based method of raising funds.
There are UK Government initiatives to incentivise investors. SEIS (Seed Enterprise Investment Scheme) is for start ups trading less than 3 years and EIS is for SMEs who have been trading less than 7 years. Investors receive income tax relief as a credit. They are also not taxed on Capital Gains Tax (as long as the business continues to qualify for 3 years) and can claim loss relief. Note that the criteria for receiving the tax-related benefits are multiple and strict.
Equity funding is typically more suitable when a business is going to market or looking to grow, especially once a developed, proven product and clear customer base are established. A successful crowdfunding campaign can also serve as effective marketing and a proof of the popularity of a business concept. Certain companies, such as property holding businesses, banks, and businesses primarily exploiting third-party intellectual property, would be unlikely to qualify for SEIS/EIS.
PerfectTed, clean, matcha-based alternative energy drinks, received a £50,000 investment from Dragons Steven Bartlett and Peter Jones for a 5% stake. The investors helped the business to go global. Within two years, the company reached a £140 million valuation.
Limited companies are increasingly being asked to give personal guarantees.
What does this mean?
Putting your personal assets, like your house, on the line before receiving any loans. This includes banks and the government’s Start Up Loans scheme. In other words, you are no longer protected by your limited company status. The money is given to you and not to your business.
Consider the opportunity cost of the time spent on securing a Venture Capitalist.
What are the odds?
For many grants, the strict criteria for entry makes finding something that doesn’t require you to adjust your business strategy a little, if not a lot, is a challenge. If you do apply, the application process can involve interviews, targets (with the potential risk of clawback if missed), monitoring and reporting requirements. Which is why Universities have bid writing experts working full time to find and complete their applications.
Venture Capitalist funding has been known to require meeting and pitching to 45 VCs over 15 weeks before securing investment. The average success rate for venture capital applications remains extremely low at 1-2%.
The question has been asked whether the time spent on the cycle of applications, followed by the bureaucracy of monitoring, might just end up costing more than the value of the award.
Weigh the loss of control, especially if multiple rounds of funding are likely.
What is the impact?
An Angel Investor using their own money, or Venture Capitalist investing collected funds, will require an equity stake. We might have heard the reasoning that the business will have a ‘smaller slice of a bigger pie’. Another aspect of equity dilution that needs to be weighed up is the inevitable loss of control. Naturally, investors want a rapid return (often looking to achieve 10x their initial stake). The larger the equity, the more influence they will have on the board and your strategy, and to what end? Faster growth and a faster exit.
Take special care when setting up EIS or SEIS funding.
Certain types of companies, such as property holding businesses, banks, and businesses primarily exploiting third-party intellectual property, generally do not qualify for these schemes. Acquiring ‘advance assurance’ from HMRC to ensure no one loses out is advised.
In Part 2, we’ll talk about grants and competitions, as well as the unique opportunities available to social enterprises and charity organisations.
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