The SEIS scheme

The Seed Enterprise Investment Scheme (SEIS) is one of the UK’s most powerful tools for helping very early‑stage businesses raise investment. It works by offering generous tax reliefs to investors who buy new shares in young companies, making it easier for founders to attract capital at the riskiest stage of growth.

What SEIS is designed to do

SEIS helps a company raise up to £250,000 in its earliest years by making investment more attractive to individuals. Investors receive benefits such as income tax relief and capital gains tax advantages, but only if the company meets strict eligibility rules and uses the money for genuine growth.

The scheme is aimed at businesses that are:

• very early stage

• UK‑based

• carrying out a new qualifying trade

• small in size (assets under £350,000 and fewer than 25 employees)

How SEIS works for a business

To use SEIS, a company raises money by issuing brand‑new ordinary shares to investors. These shares must be full‑risk: no special rights, no guarantees, and investors must pay in cash at the time of issue.

The money raised must be spent within three years on:

• a qualifying trade

• preparing to trade

• research and development leading to a qualifying trade

It cannot be used to buy another business or pay off existing debts.

Eligibility checklist for small business owners

A company can apply for SEIS if it meets all of the following:

• Trading for less than three years

• Gross assets under £350,000 at the time shares are issued

• Fewer than 25 employees

• Not listed on a recognised stock exchange and no plans to become listed

• Not controlled by another company

• Carrying out a new qualifying trade (not excluded activities)

• Has not previously raised investment through EIS or VCT schemes

These conditions ensure SEIS is reserved for genuinely early‑stage, high‑risk ventures.

What a small business owner must do to apply

Applying for SEIS involves two main stages: Advance Assurance (optional but recommended) and Compliance (mandatory after investment).

1. Check eligibility and prepare

Before applying, the founder must confirm the company meets all SEIS rules and the “risk‑to‑capital” condition—meaning the investment is genuinely at risk and intended for growth.

2. (Optional but helpful) Apply for Advance Assurance

Advance Assurance is a pre‑approval from HMRC that reassures investors they will qualify for SEIS tax relief. While not required, it is often essential for closing a funding round.

3. Issue the shares

Once investors commit, the company issues new ordinary shares and receives the investment funds.

4. Submit the SEIS1 compliance statement

After the company has spent some of the money on qualifying activities, it must submit form SEIS1 to HMRC Apply to use the Seed Enterprise Investment Scheme to raise money for your company - GOV.UK. This confirms the investment meets all SEIS rules.

5. Provide SEIS3 certificates to investors

If HMRC approves the SEIS1, they issue SEIS3 certificates, which the company passes to investors so they can claim their tax relief.

What happens next

The company must continue to follow SEIS rules for three years after the investment. If it breaks the rules, e.g. by changing its trade or returning capital to investors HMRC can withdraw the tax relief.

Why SEIS matters for founders

For small and micro businesses, SEIS can be transformative because it:

• reduces investor risk, making fundraising easier

• brings in early capital for product development, hiring, or market entry

• signals credibility to future investors

• can be combined with later EIS rounds (but SEIS must come first)

SEIS readiness

1. Confirm basic company eligibility

• UK company:

  • Company is registered in the UK and has a UK permanent establishment.

• Age of company:

  • Company has been trading for less than 3 years at the time of share issue.

• Size limits:

  • Fewer than 25 full‑time equivalent employees.

  • Gross assets under £350,000 immediately before the SEIS share issue.

• Independence:

  • Not controlled by another company.

  • Not listed on a recognised stock exchange and no plans to list.

• Funding cap:

  • Total SEIS investment (including this round) will not exceed £250,000.

2. Check trade and activity eligibility

• Qualifying trade:

  • Main business activity is a qualifying trade (not mainly in excluded activities such as property development, financial services, energy generation, etc.).

• New trade:

  • Trade is new (not previously carried on by another person or company).

• Risk‑to‑capital condition:

  • Investment will be used to grow and develop the business.

  • Investor’s capital is genuinely at risk (no guarantees, no artificial structures).

3. Get the company structure and shares right

• Share type:

  • SEIS shares will be new, ordinary shares.

  • No preferential rights to dividends, assets on winding up, or redemption.

• Voting rights:

  • Shares carry normal voting rights (or none), but no special protections that reduce risk.

• No pre‑arranged exits:

  • No agreements in place to buy back shares or guarantee investor returns.

4. Plan how the SEIS money will be used

• Use of funds:

  • Funds will be spent within 3 years on:

    • a qualifying trade,

    • preparing to trade, or

    • R&D leading to a qualifying trade.

• No disallowed uses:

  • Money will not be used to:

    • buy another business or shares,

    • repay existing loans, or

    • pay out to founders or connected persons.

• Business plan and forecasts:

  • Clear written plan showing:

    • how much is being raised,

    • what it will be spent on,

    • how it supports growth.

5. Prepare for Advance Assurance (strongly recommended)

• Documents ready:

  • Latest business plan and financial forecasts.

  • Cap table (current and post‑investment).

  • Details of any previous state aid / risk finance received.

  • Draft term sheet or outline of investment terms.

• Advance Assurance application:

  • Complete HMRC’s Advance Assurance form for SEIS (and EIS if relevant).

  • Include details of at least one potential investor (even if indicative).

• File and wait:

  • Submit to HMRC and keep a copy for investors.

  • Use the Advance Assurance letter as part of your investor pack.

6. Get investor and process readiness in place

• Investor eligibility awareness:

  • You understand that investors must be individuals (or certain funds) and not “connected” in disqualifying ways (e.g. too large a shareholding or employment in some cases).

• Share issue process:

  • You know how and when shares will be issued (on completion, not later).

  • Cash will be fully paid for the shares at the time of issue.

• Record‑keeping:

  • Board minutes approving the share issue.

  • Updated statutory registers and Companies House filings.

7. Plan for SEIS compliance after the raise

• SEIS1 form:

  • You know you must submit SEIS1 to HMRC after:

    • the company has started trading, and

    • at least some of the SEIS money has been spent on qualifying activity.

• SEIS3 certificates:

  • Once HMRC approves SEIS1, you will receive authority to issue SEIS3 certificates to investors so they can claim tax relief.

• Ongoing compliance (3‑year period):

  • You understand the company must, for 3 years after the share issue:

    • continue to meet SEIS conditions,

    • not change to a non‑qualifying trade,

    • not return capital or provide value to investors in disqualifying ways.

8. Final “ready to raise under SEIS” check

• All eligibility tests passed?

• Business plan and use of funds clearly documented?

• Advance Assurance submitted or obtained?

• Legal/share structure aligned with SEIS rules?

• Internal records and processes ready for SEIS1 and SEIS3?

If the answer is “yes” to all of these, the business is effectively SEIS‑ready and can confidently present itself as such in investor materials and toolkits.

What is a 'qualifying trade' under the SEIS scheme?

A qualifying trade under the Seed Enterprise Investment Scheme (SEIS) is a commercial, profit‑seeking business activity that does not consist to a substantial extent of any of HMRC’s excluded activities. This definition is set out in HMRC’s Venture Capital Schemes Manual and applies to both SEIS and EIS.

What HMRC means by a “qualifying trade”

A qualifying trade must meet three core conditions:

• It is carried on with a view to profit. The company must be genuinely trading on a commercial basis, not holding investments or operating as a passive vehicle.

• It is not substantially made up of excluded activities. HMRC allows some incidental involvement, but excluded activities cannot form a “substantial” part of the business.

• It is a new trade. For SEIS specifically, the company must exist wholly for the purpose of carrying on a new qualifying trade or be preparing to do so.

Research and development that leads to a qualifying trade also counts as qualifying activity.

Activities that do qualify

Most ordinary commercial trades qualify, provided they are run with the intention of generating profit and do not fall into excluded categories. Examples include:

• Technology and software development (where licensing relates to self‑created IP)

• Manufacturing

• Retail and wholesale (normal trading of goods)

• Creative industries

• Food and drink businesses

• Professional services other than legal or accountancy services

These are not exhaustive, but they illustrate the broad range of acceptable trades.

Activities that do not qualify (excluded activities)

HMRC maintains a list of excluded activities. If a company carries out these to a substantial extent, it cannot qualify for SEIS. Key exclusions include:

• Dealing in land, commodities, futures, shares, or other financial instruments

• Financial services, including banking, insurance, money‑lending, debt factoring, hire‑purchase financing

• Property development

• Leasing or letting assets

• Receiving royalties or licence fees (unless from self‑created IP such as software)

• Legal or accountancy services

• Farming, market gardening, forestry, timber production

• Shipbuilding, coal production, steel production

• Operating or managing hotels, nursing homes, or residential care homes

• Electricity generation (with limited exceptions for hydro, anaerobic digestion, or certain community energy structures)

• Providing services to a business whose main activity is excluded, where the same person controls both companies

These exclusions are strict, but some have caveats, for example, software licensing can qualify if the company created the IP itself.

How HMRC assesses “substantial extent”

HMRC does not define a fixed percentage, but guidance suggests that if excluded activities make up more than around 20% of the company’s activities, measured by turnover, assets, time spent, or other indicators, the trade may be disqualified. This is assessed case by case.

Why this matters for founders

Getting the trade classification wrong can jeopardise an entire funding round. Investors rely on SEIS relief, and HMRC can refuse or withdraw relief if the trade is later found to be non‑qualifying. This is why most founders seek Advance Assurance before raising.

If you’re preparing SEIS guidance for SMEs, would it help to map out the most common “grey areas” where founders accidentally fall into excluded activities, such as platforms, fintech‑adjacent models, or mixed‑trade businesses?

Please map out the most common grey areas where founders accidentally fall into excluded activities, such as platforms, fintech-adjacent models or mixed-trade businesses

The grey areas around SEIS are where founders think they qualify, but HMRC later decides the business is carrying out an excluded activity to a “substantial extent”. These are the cases that most often derail Advance Assurance or SEIS1 approval.

The following map breaks down the most common traps, why they happen, and how founders can structure their model to stay compliant.

Platform businesses: when “facilitating” becomes “providing services to an excluded trade”

Why platforms are risky

Platforms often sit between buyers and sellers, and HMRC looks closely at what the platform actually does, not how the founder describes it. Problems arise when the platform:

• handles payments

• sets prices

• takes possession of goods

• provides services to a business engaged in an excluded activity

• resembles a financial intermediary

Common pitfalls

• Marketplace for property rentals  can be seen as providing services to a property business (excluded).

• Marketplace for financial products may fall into financial services.

• Marketplace for second‑hand goods if the platform takes ownership of goods, it may be “dealing in goods” rather than providing software.

• Gig‑economy platforms if the platform is too involved in the underlying service, HMRC may treat it as carrying out that service.

How to stay compliant

• Ensure the company’s core activity is software development, not the underlying trade.

• Keep the platform’s role to facilitation, not execution.

• Avoid taking possession of goods or setting prices.

• Make clear that revenue comes from software/IP, not from the excluded activity.

Fintech‑adjacent models: where innovation looks like financial services

Why fintech is tricky

Financial services are explicitly excluded. Many fintech startups unintentionally cross into:

• money‑lending

• insurance

• investment management

• payment services

• credit broking

Common pitfalls

• Wallet apps that hold client money.

• Buy‑now‑pay‑later models that constitute lending.

• Savings or investment apps that manage or advise on portfolios.

• Insurance comparison platforms that receive commission.

• Crypto exchanges that deal in financial instruments.

How to stay compliant

• Focus on software/IP creation, not handling money.

• Avoid regulated activities unless the company is purely a tech provider.

• Structure the model so the company provides tools, not financial products.

• Use clear language in the business plan: “software”, “analytics”, “infrastructure”, not “lending”, “investing”, “managing”.

Mixed‑trade businesses: when a qualifying trade is diluted by an excluded one

Why mixed trades fail

HMRC assesses whether excluded activities make up a substantial part of the business. There is no fixed percentage, but anything around or above 20% (by turnover, assets, time, or intention) is risky.

Common pitfalls

• Retailers with a large rental arm (letting jewellery, equipment, vehicles).

• Food businesses with significant catering or hospitality operations (hotels, cafés inside shops).

• Software companies that also license third‑party IP (royalties from non‑self‑created IP are excluded).

• Manufacturers who also lease equipment.

• Creative studios that also run a property‑based coworking space.

How to stay compliant

• Separate excluded activities into a different legal entity.

• Ensure the SEIS company’s main purpose is the qualifying trade.

• Keep excluded activities incidental and clearly documented as such.

• Demonstrate that future growth is driven by the qualifying trade.

IP‑based businesses: when royalties become disqualifying

Why this is confusing

Royalties and licence fees are excluded unless they come from self‑created intellectual property.

Common pitfalls

• Licensing third‑party content or white‑label software.

• Acting as a reseller of someone else’s IP.

• Using contractors to create IP without proper assignment.

How to stay compliant

• Ensure all IP is created in‑house and properly assigned.

• Document development work clearly.

• Avoid business models based on reselling or sublicensing external IP.

Property‑adjacent models: where “tech for property” looks like property development

Why founders get caught

Proptech is allowed. Property development is not. The line between them is thin.

Common pitfalls

• Platforms that source, refurbish, or manage properties.

• Businesses that buy property to demonstrate their tech.

• Models where the company takes a share of rental income.

• “Rent‑to‑rent” or serviced accommodation models.

How to stay compliant

• Keep the business focused on software, data, or analytics.

• Avoid owning, managing, or developing property.

• Ensure revenue comes from tech, not property income.

Service companies supporting excluded trades: the hidden trap

Why this catches founders out

If a company provides services to a business engaged in an excluded activity and both are controlled by the same person, the service company is also excluded.

Common pitfalls

• A founder owns a property company and a tech company that services it.

• A founder owns a financial services firm and a software company that supports it.

• A founder owns a hospitality business and a supplier business.

How to stay compliant

• Avoid cross‑ownership structures where one company supports an excluded trade.

• Keep the SEIS company independent from any excluded‑trade entities.

• Document arm’s‑length relationships.

Subscription and membership models: when recurring revenue masks excluded activity

Why this is grey

Subscriptions are fine—but what the subscription buys matters.

Common pitfalls

• Subscriptions that include equipment leasing.

• Memberships that include accommodation or hospitality.

• Subscription boxes that involve dealing in second‑hand goods.

How to stay compliant

• Ensure subscriptions relate to services, software, or products, not excluded activities.

• Avoid bundling excluded activities into the subscription.

The single biggest pattern across all grey areas

Founders describe their business as tech, platform, or software, but HMRC looks at:

• what the company actually does

• how it earns money

• where the risk sits

• what the business plan emphasises

• what the company will do with SEIS funds

If the underlying activity is excluded, calling it “tech” won’t save it.

Finance Options for UK Small and Micro Business Owners

Small and micro businesses in the UK have access to a wide range of financing options to support their growth and operations. Each type of finance comes with its own set of funders, eligibility criteria, advantages, and disadvantages. It can be difficult to know what finding would be right for your business given the stage it’s at. You also need to know how to be fully ‘ready’ for funding. If you aren’t funding ready you’ll be devastated to be rejected and you might be recicent to try again. Getting the right funding for the stage of your business will help you invest and grow more quickly. Not being funding ready, and smarting following a rejection, could hold your business back for years.

We’re going to be working on a rage of information that can help you think about your options and how to get ready to apply. The best advice is to talk to your accountant (make sure they’re qualified) (if you don’t already have one try here Find an ACCA firm | ACCA Global).

If you think accountants are too expensive remember they can save you money, give you useful advice and save you spending money on the wrong things.

Funding Options

Bootstrapping

If you’re bootstrapping your business you’re funding it yourself. The business is funded by the business owner using personal savings or revenue generated by the business.

Eligibility Criteria: No formal criteria; relies on the owner's personal financial resources.

Pros:

·         - Full control over the business.

·         - No debt or equity dilution.

·         - Quick decision-making.

Cons:

·         - Limited by personal financial capacity.

·         - High personal financial risk.

·         - May restrict growth potential.

Friends and Family

Relatives, friends, or close acquaintances of the business owner put money into the business.

Eligibility Criteria: Trust-based; may involve informal agreements or formal contracts.

Pros:

·         - Flexible terms and conditions.

·         - Quick access to funds.

·         - Supportive investors.

Cons:

·         - Potential strain on personal relationships.

·         - Lack of formal structure can lead to misunderstandings.

·         - Limited funding capacity.

Grants

Grants are funds that aren’t repayable but may come with strings attached and a set of outcomes that have to be measured and the evidence given to the funder.

Typical Funders: Government bodies, local authorities, charities, and private organisations.

Eligibility Criteria: Eligibility varies; often based on business size, sector, location, and purpose of funding.

Pros:

·         - Non-repayable funding.

·         - No equity dilution or interest payments.

·         - Encourages innovation and development.

Cons:

·         - Highly competitive application process.

·         - Time-consuming paperwork.

·         - Often comes with strict usage conditions.

Start Up Loans

These are what it says on the tin.

Typical Funders: UK Government-backed Start Up Loans Company and delivery partners.

Eligibility Criteria: UK-based business, trading for less than 36 months, viable business plan, and credit check.

Pros:

·         - Fixed low interest rates.

·         - Includes mentoring and support.

·         - No early repayment fees.

Cons:

·         - Personal credit history affects eligibility.

·         - Loan amounts are relatively small.

·         - Personal guarantee usually required.

Bank Loans

Banks where business owners already have an account are often the first port of call when the owner needs funding.

Typical Funders: High street banks and commercial lenders.

Eligibility Criteria: Strong business plan, good credit history, financial projections, and sometimes collateral.

Pros:

·         - Structured repayment terms.

·         - Can fund larger investments.

·         - Builds business credit history.

Cons:

·         - Lengthy application process.

·         - May require collateral.

·         - Interest and fees apply.

Overdrafts

Typical Funders: Banks and financial institutions.

Eligibility Criteria: Business bank account with good credit history and turnover.

Pros:

·         - Flexible short-term borrowing.

·         - Only pay interest on the amount used.

·         - Quick access to funds.

Cons:

·         - High interest rates.

·         - Can be withdrawn by the bank at any time.

·         - Not suitable for long-term financing.

Equity financing

Equity financing is one of those concepts that sounds more intimidating than it really is, but once you break it down, it can be a powerful tool in a founder’s toolkit.

Equity financing is when a business raises money by selling shares, ownership stakes, in the company. Instead of taking on debt and repaying it with interest, you give investors a slice of the business in exchange for capital.

You get money now. They get a share of your future.

Typical funders:

Angel investors – high‑net‑worth individuals investing their own money

Venture capital firms – professional investment funds backing high‑growth companies

Equity crowdfunding – the public investing small amounts via platforms like Crowdcube or SeedrsStrategic corporate investors – companies investing for commercial or strategic reasons

Friends and family – sometimes structured as equity rather than loans

Equity investors are buying into potential, not collateral. They usually want to see:

·         A scalable business model

·         A strong, credible founder or founding team

·         Evidence of traction (customers, revenue, growth, or market validation)A large enough market opportunity

·         A clear exit route (e.g., acquisition, IPO)

·         Clean governance and compliance

·         A compelling pitch and financial projections

Pros

·         No repayments – cash flow stays free for growth

·         No interest – unlike loans, the cost isn’t fixed

·         Access to expertise – angels and VCs often bring networks, mentoring, and credibility

·         Higher risk tolerance – investors can back early‑stage or innovative ideas banks won’t touch

·         Can unlock further funding – equity rounds often lead to more rounds

Cons

·         Loss of ownership – you give up a percentage of your business

·         Loss of some control –investors may want board seats or veto rights

·         Pressure for rapid growth – especially with venture capital

·         Time‑consuming – pitching, due diligence, and negotiations can take months

·         Dilution – future funding rounds reduce your percentage further

Equity financing makes sense when a business:

·         Has high growth potential

·         Needs significant capital to scale

·         Operates in innovation‑driven sectors (tech, health, green energy, etc.)

·         Can’t or shouldn’t take on debt

·         Wants strategic partners, not just money

Asset Finance

Asset financing is a way for a business to acquire or unlock value from physical assets without paying the full cost upfront. Instead of buying equipment outright or tying up cash, the business uses the asset itself as security for the finance.

It’s one of the most practical and widely used forms of finance for small and micro businesses because it’s flexible, accessible, and closely tied to real‑world operations.

Asset finance allows a business to spread the cost of equipment, vehicles, machinery, or technology over time. The lender either buys the asset and leases it to you, or uses an asset you already own as collateral to release cash.

You get the equipment you need now, and pay for it gradually.

The main types of asset finance

1. Hire Purchase (HP)

You pay in instalments and own the asset at the end.

2. Equipment Leasing

You rent the asset for a fixed period. You may return it, upgrade it, or buy it at the end.

3. Finance Lease

You lease the asset for most of its useful life and take on maintenance responsibilities.

4. Operating Lease

Shorter-term leasing where the lender retains ownership and responsibility for maintenance.

5. Asset Refinance

You use assets you already own as security to release cash back into the business.

Asset finance is used for

• Vehicles (cars, vans, HGVs)

• Machinery and tools

• IT equipment and software

• Manufacturing equipment

• Salon or catering equipment

• Medical or care equipment

• Construction plant and machinery

Typical funders:

• High street banks

• Specialist asset finance companies

• Independent brokers

• Manufacturer finance arms (e.g., Ford Finance, Caterpillar Finance)

• Some credit unions and CDFIs (for smaller amounts)

Eligibility criteria lenders typically look for

• Ability to make repayments (cash flow)

• Trading history (though start-ups can still qualify)

• Credit history (business or personal)

• Value and condition of the asset

• Proof the asset is essential to operations

• For refinance: proof of ownership

Because the asset itself acts as security, lenders are often more flexible than with unsecured loans.

Pros

• Preserves cash flow – no large upfront payments

• Easier approval – the asset reduces lender risk

• Access to better equipment – helps small firms compete

• Flexible terms – upgrade, return, or buy

• Tax benefits – depending on the structure

• Protects working capital – money stays available for wages, stock, marketing

Cons

• You don’t own the asset immediately (except with HP at the end)

• Can cost more overall than buying outright

• Asset can be repossessed if payments are missed

• Limited to asset-based needs – not suitable for general cash flow unless refinancing

• Restrictions – mileage limits, maintenance requirements, or usage rules

Asset finance makes sense when a business:

• Needs equipment to operate or grow

• Wants to avoid large upfront costs

• Has predictable revenue to cover instalments

• Wants flexibility to upgrade equipment regularly

• Prefers not to use personal guarantees (though some lenders still ask)

Invoice Finance

Invoice finance is a way for a business to unlock cash tied up in unpaid invoices. Instead of waiting 30, 60, or even 120 days for customers to pay, a lender advances most of the invoice value upfront, giving the business immediate working capital. However if possible it’s always best to negotiate better payment terms in a customer contract and make sure they pay on time as agreed. That coasts less than any type of borrowing.

Invoice financing is essentially turning your invoices into cash flow. It allows a business to raise money against the value of its outstanding invoices. The lender advances a percentage of the invoice (usually 70–90%), and the rest—minus fees—is paid when the customer settles the invoice.

You invoice your customer → the lender gives you most of the money now → you get the balance when the customer pays.

There are two main types of invoice finance

1. Invoice Factoring

• The lender manages your sales ledger and collects payments from customers directly.

• Customers usually know you’re using a factoring service.

Best for: small businesses without a dedicated credit control team.

2. Invoice Discounting

• You keep control of your credit control and customer relationships.

• Customers usually don’t know a lender is involved (confidential).

Best for: more established businesses with stronger systems.

Typical funders

• Banks

• Specialist invoice finance companies

• Fintech lenders

• Some CDFIs (for smaller businesses)

Eligibility criteria lenders typically look for

• You sell to other businesses (B2B)

• You issue invoices with clear payment terms

• Your customers are creditworthy

• You have a consistent invoicing process

• You can demonstrate viable trading and predictable revenue

Start-ups can qualify, but lenders focus heavily on the reliability of your customers.

Pros

• Improves cash flow quickly

• Grows with your sales – more invoices = more available funding

• No need for traditional collateral – the invoices are the security

• Useful for businesses with long payment terms

• Can reduce admin (factoring includes credit control)

Cons

• Fees can be high, especially for small businesses

• Customer relationships may be affected (in factoring)

• Not suitable for cash businesses or retail

• You rely on customers paying on time

• Contracts can be restrictive (minimum terms, volume requirements)

Invoice finance makes sense when a business:

• Has long payment terms (e.g., 30–90 days)

• Needs working capital to grow

• Has reliable, creditworthy customers

• Wants to avoid taking on debt

• Experiences cash flow gaps due to late payments

Merchant Cash Advance

This is business finance where a lender gives you a lump sum of money upfront, and you repay it through a percentage of your future card sales. It’s not a loan. It’s an advance on your projected revenue. You get cash now, and the lender gets paid back automatically as your customers pay you.

An MCA provider looks at your recent debit/credit card takings and uses that to estimate how much they can advance you. Instead of fixed monthly repayments, they take an agreed percentage (often 10–20%) of your daily card sales until the advance is fully repaid.

This means repayments rise and fall with your revenue.

Typical funders

• Specialist MCA lenders

• Fintech finance companies

• Some payment processors (e.g., those who handle your card terminal)

Banks generally do not offer MCAs.

Eligibility criteria lenders typically look for

• A history of consistent card sales

• A minimum monthly card turnover (often £5,000–£10,000)

• At least 3–6 months of trading

• A UK business bank account

• A card terminal or online payment processor they can integrate with

Personal credit checks may be done, but approval is usually more focused on your sales volume.

Pros

• Flexible repayments — you pay more when you earn more, less when you earn less

• Fast approval — often within 24–48 hours

• No fixed monthly payments

• No traditional collateral

• Good for businesses with seasonal or fluctuating revenue

Cons

• High cost of finance — often more expensive than loans or overdrafts

• Only suitable for businesses with strong card sales

• Less transparency — fees are often expressed as a “factor rate” rather than APR

• Daily deductions can affect cash flow

• Short repayment periods (usually 3–12 months)

Merchant cash advance makes sense when a business:

• Takes most of its revenue through card payments

• Has seasonal or unpredictable income

• Needs cash quickly

• Can’t access traditional loans

• Wants repayments that flex with turnover

It’s commonly used by salons, restaurants, cafés, retail shops, and hospitality businesses — sectors where card payments dominate.

Crowdfunding

Crowdfunding is a way for a business to raise money by collecting small amounts of investment or support from a large number of people, usually through an online platform. Instead of relying on one bank or investor, you tap into the “crowd”.

It’s become a major funding route for UK small and micro businesses because it blends finance, marketing, and community‑building all in one.

You create a campaign on a crowdfunding platform, explain your business or project, set a funding target, and invite the public to contribute. In return, supporters receive something depending on the type of crowdfunding you choose.

The four main types of crowdfunding

1. Reward Crowdfunding

People contribute money in exchange for a reward — usually a product, experience, or early access.

Examples: Kickstarter, Indiegogo
Best for: product launches, creative projects, early‑stage ideas.

2. Equity Crowdfunding

People invest money in exchange for shares in your business.

Examples: Crowdcube, Seedrs
Best for: start-ups and growth businesses seeking investment without going to angels or VCs.

3. Debt Crowdfunding (Peer‑to‑Peer Lending)

The crowd lends you money, and you repay it with interest — similar to a loan, but funded by many individuals.

Examples: Funding Circle, LendingCrowd
Best for: businesses with revenue that want loan-style finance.

4. Donation Crowdfunding

People donate money with no expectation of return.
Common for social enterprises, community projects, or charitable causes.

Examples: GoFundMe, JustGiving
Best for: mission‑driven or community‑focused initiatives.

Typical Funders: Public investors via online platforms (e.g., Kickstarter, Crowdcube, Seedrs).

Eligibility Criteria: Compelling pitch, business plan, and marketing strategy.

Pros:

·         - Access to a wide investor base.

·         - Validates business idea.

·         - Can build a loyal customer base.

Cons:

·         - Time-consuming campaign preparation.

·         - Success not guaranteed.

·         - Public disclosure of business idea.

Angel Investment

Angel investment is one of the most founder‑friendly forms of equity finance when used well.

Angel investment is when a high‑net‑worth individual (an “angel”) invests their own personal money into a business in exchange for equity (shares). Angels often invest at early stages, sometimes when a business is little more than a strong idea, a prototype, or early traction.
An angel backs you with money, experience, and contacts and gets a stake in your business.

Angels are typically:

• Experienced entrepreneurs

• Industry experts

• Senior professionals (finance, tech, healthcare, etc.)

• People with disposable capital looking for high‑risk, high‑reward opportunities

Many angels also join networks such as:

• UK Business Angels Association (UKBAA)

• Angel Investment Network

• Regional angel groups (e.g., NorthInvest, Minerva, Green Angel Syndicate)

Angels invest in people as much as businesses. They usually want to see:

• A credible founder or founding team

• A scalable business model

• A clear market opportunity

• Early signs of traction (customers, revenue, pilots, waitlists)

• A realistic valuation

• A clear exit route (acquisition, future funding rounds)

They also look for businesses where they can add value through mentoring or connections.

Pros

• Access to capital without debt

• Hands‑on support — mentoring, strategy, introductions

• Flexible terms compared to venture capital

• Faster decisions — angels can move quickly

• Credibility boost — having an angel can help attract more investors

Cons

• Equity dilution — you give up a percentage of your business

• Loss of some control — angels may want a say in decisions

• High expectations — angels want growth and a return

• Not suitable for lifestyle businesses — they look for scale

Angel investment makes sense when a business:

• Has high growth potential

• Needs more than a small loan but less than venture capital

• Would benefit from strategic guidance

• Has a compelling story or innovation

• Is ready to scale, not just survive

Venture Capital

Venture capital (VC) is a form of equity investment where professional investment firms put money into high‑growth businesses in exchange for shares. It’s designed for companies that have the potential to scale rapidly, often in technology, innovation, or disruptive sectors.
Investors give you significant capital to grow fast, and in return they take a meaningful ownership stake and expect a big payoff later.

Venture capital firms raise money from institutions (pension funds, corporates, wealthy individuals) and invest that pooled money into early‑stage or scaling businesses. They typically invest in rounds: Seed, Series A, B, C, and beyond, each round supporting a new stage of growth.

VCs don’t just provide money; they often bring:

• Strategic guidance

• Industry expertise

• Access to networks

• Support with hiring, governance, and expansion

VCs also expect rapid growth and a clear exit strategy (usually an acquisition or IPO).

VCs are professional investors, often structured as:

• Venture capital funds

• Corporate venture arms (e.g., Google Ventures)

• Sector‑specific funds (healthtech, fintech, climate tech)

• Regional VC funds (e.g., Northern Gritstone, Scottish Enterprise funds)

• University‑linked funds

They invest other people’s money, so they are accountable for delivering strong returns.

VCs are highly selective. They typically want:

• A scalable business model

• A large, growing market opportunity

• A strong founder or founding team

• Evidence of traction (users, revenue, growth metrics)

• A defensible product or technology

• A clear path to significant valuation growth

• A realistic exit route within 5–10 years

VCs invest in businesses that can grow 10x, not just survive.

Pros

• Large amounts of funding ,often millions

• No repayments. It’s equity, not debt

• Access to expertise, networks, and credibility

• Support with scaling, hiring, governance, and strategy

• Can accelerate growth dramatically

Cons

• Significant equity dilution. You give up a meaningful share

• Loss of control. VCs often want board seats and veto rights

• High pressure for rapid growth

• Not suitable for lifestyle or slow‑growth businesses

• Long, intensive due diligence and legal processes

Venture capital makes sense when a business:

• Has high growth potential

• Operates in a scalable sector (tech, biotech, AI, fintech, etc.)

• Needs substantial capital to expand

• Has a strong team and early traction

• Is aiming for a major exit in the future

It’s not the right choice for most microbusinesses but for the right kind of company, it can be transformational.

Community Development Finance Institutions (CDFIs).

CDFIs are non‑profit, socially‑driven lenders that provide affordable loans to businesses, social enterprises, and individuals who struggle to access mainstream finance. There are very few CDFIs and they focus on underserved communities, early‑stage businesses, and founders who may face barriers with traditional lenders.

According to the British Business Bank, CDFIs typically provide debt finance through a relationship‑based approach and often lend when banks and other lenders won’t.

1. Small Business Loans

• Typical amounts: £1,000 to £250,000

• Used for: working capital, equipment, hiring, marketing, stock, expansion

• Repayable with interest over an agreed period

• Often more flexible than bank loans

• CDFIs take time to understand the business and its circumstances

2. Start‑up Loans (via British Business Bank delivery)

Many CDFIs deliver the government‑backed Start Up Loans programme.

• Up to £25,000 per founder

• Fixed interest

• Includes mentoring

• Suitable for businesses trading under 3 years

• Confirmed by the British Business Bank as part of CDFI activity

3. Social Enterprise & Community Loans

• For mission‑driven organisations

• Focus on social impact, job creation, community benefit

• Often blended with support or mentoring

• CDFIs specialise in serving underserved communities and promoting local economic development

4. Flexible, Relationship‑Based Lending

CDFIs tailor loans to the business’s needs rather than rigid criteria.

• They consider the full picture, not just credit scores

• They may lend to businesses declined by banks

• They support women‑led, ethnic minority‑led, and rural businesses disproportionately excluded from mainstream finance

5. Asset‑Backed or Secured Loans (case‑by‑case)

Some CDFIs may take security over business or personal assets, but this varies.

• Security may be required

• Personal guarantees may be requested

• This is highlighted as a potential risk by the British Business Bank

CDFIs Don’t Typically Offer

• Equity investment

• Venture capital

• Grants (though they may partner with grant‑makers)

• High‑value corporate finance

• Complex financial products

CDFIs specialise in affordable, accessible debt finance with a social purpose.

Eligibility Criteria (Typical)

CDFIs are more flexible than banks, but they still assess:

• Viability of the business

• Ability to repay

• Business plan and accounts

• Social or community impact (sometimes)

• Trading history (but start‑ups are welcome)

• Personal or business credit history (but not a deal‑breaker)

They take a relationship‑based approach, getting to know the business and its context.

Businesses use CDFIs because they lend when banks won’t

• They support underserved founders

• They offer mentoring and guidance

• They are locally rooted and understand community needs

• They help drive inclusive economic growth

Typical Funders: Not-for-profit lenders such as Fredericks Foundation and BCRS Business Loans.

Eligibility Criteria: Viable business plan, community impact, and limited access to mainstream finance.

Pros:

·         - Support for underserved businesses.

·         - Flexible lending criteria.

·         - Localised support.

Cons:

·         - Smaller loan amounts.

·         - May require personal guarantees.

·         - Limited availability.

Credit Unions

Credit unions in the UK are community‑based, not‑for‑profit financial cooperatives. While most of their lending is to individuals, some credit unions do offer business loans, especially to microbusinesses, sole traders, and early‑stage founders who may struggle with mainstream banks. Find Your Credit Union - search to find credit unions near you

1. Business Loans (example: Community First Credit Union)

One UK credit union explicitly offers business loans up to £15,000 with fixed interest and flexible terms.
They describe their lending as suitable for:

• Start‑ups

• Businesses needing equipment

• Businesses expanding or hiring

• General working capital

They emphasise:

• Fixed interest

• Daily interest calculation

• No penalties for early repayment

• Loans subject to affordability and risk assessment

This is a typical model for UK credit unions that lend to businesses.

Types of Business Lending Credit Unions Typically Offer

1. Small Business Loans

• Usually £1,000–£15,000, sometimes up to £25,000 depending on the credit union

• Fixed interest rates

• Repayable weekly, fortnightly, or monthly

• Used for: equipment, stock, marketing, hiring, cash flow, expansion

2. Start‑up or Early‑Stage Loans

Some credit unions support new businesses, especially those unable to access bank finance.

3. Social Enterprise or Community Business Loans

A few credit unions lend to CICs, charities, or community groups.

4. Personal Loans Used for Business Purposes

Some credit unions lend to the individual (not the business entity) for business use.

Eligibility Criteria (Typical)

Credit unions usually require:

• Membership (often based on postcode, employer, or community)

• A viable business plan

• Affordability assessment

• Personal or business bank statements

• Sometimes personal guarantees

• For larger loans: accounts or financial projections

They are more flexible than banks and often lend to people who have been declined elsewhere.

Pros

• Lower interest rates than many alternative lenders

• Community‑focused and relationship‑based

• Flexible repayment terms

• No early repayment penalties

• Suitable for microbusinesses and sole traders

• More inclusive for underserved founders

Cons

• Loan amounts are smaller (typically up to £15k)

• Not all credit unions lend to businesses

• Membership rules may limit access

• Slower processes than fintech lenders

• May require personal guarantees

Credit Union Lending Makes Sense when a business:

• Needs a small, affordable loan

• Has been declined by banks

• Operates locally or serves the community

• Wants ethical, community‑based finance

• Is a sole trader, microbusiness, or early‑stage founder

Peer-to-Peer Lending

Peer‑to‑peer (P2P) business lending is a form of online borrowing where businesses get loans directly from individual investors rather than from a bank. It sits somewhere between traditional lending and crowdfunding, but it’s structured as a loan, not equity.

It’s become a major alternative finance route for UK small businesses, especially those that want fast decisions or have struggled with mainstream lenders.

P2P platforms act as a marketplace:

• Businesses apply for a loan

• Individual investors review the opportunity

• Investors lend small amounts each

• The platform bundles these into one loan for the business

The business repays the loan with interest, and the investors receive the returns.
Many people lend you small amounts and you repay them through the platform.

Common UK platforms include:

• Funding Circle

• LendingCrowd

• Folk2Folk

• Assetz Capital (historically)

Each platform has its own criteria and risk models.

Businesses use P2P lending for

• Working capital

• Expansion

• Equipment

• Hiring

• Marketing

• Stock purchases

• Cash flow smoothing

It’s especially popular with micro and small businesses that need quick access to funds.

Eligibility criteria (typical)

Platforms usually look for:

• UK‑registered business

• Minimum trading history (often 2 years, though some accept less)

• Turnover thresholds

• Good credit history (business or personal)

• Bank statements and accounts

• Ability to repay

Some platforms specialise in rural businesses, property‑backed loans, or specific sectors.

Pros

• Fast decisions — often within days

• More flexible than banks

• Competitive interest rates (depending on risk)

• No equity dilution

• Transparent online process

• Can be accessible for businesses declined by banks

Cons

• Interest rates can be higher for higher‑risk borrowers

• Personal guarantees are often required

• Less regulated than traditional banks

• Platform risk — if the platform fails, administration can complicate things

• Not suitable for very early‑stage businesses (most require trading history)

P2P lending makes sense when a business:

• Needs a loan quickly

• Has steady revenue but limited collateral

• Wants to avoid the complexity of bank lending

• Prefers not to give up equity

• Has been declined by mainstream lenders but is still viable

Social Investment

Social investment is a form of purpose‑driven finance where investors provide money to organisations that aim to deliver both a social impact and a financial return. It sits between traditional commercial lending and charitable funding.
It’s investment for businesses that want to do good and do well.

Social investment provides capital to:

• Social enterprises

• Charities

• Community businesses

• Mission‑driven businesses

• Organisations tackling social or environmental challenges

The funding can take the form of loans, blended finance, equity‑like investments, or social impact bonds, depending on the organisation’s structure and goals.

The key feature is that investors expect repayment, but they also prioritise positive social outcomes.

 Types of social investment

1. Social Loans

Repayable finance with flexible terms, often lower interest, and support built in.

Used for:

• Growth

• Working capital

• Buying equipment

• Delivering services

• Expanding impact

2. Blended Finance

A mix of grant + loan, designed to reduce risk and make borrowing more affordable.

Often used for:

• Early‑stage social enterprises

• Community asset purchases

• High‑impact projects

3. Equity‑like Investments

For organisations that can’t issue shares (e.g., CICs), investors may use:

• Revenue participation agreements

• Quasi‑equity

• Patient capital

Repayments are linked to performance rather than fixed instalments.

4. Social Impact Bonds (SIBs)

Investors fund a social programme upfront.
Government or commissioners repay investors only if outcomes are achieved.

Used in areas like:

• Homelessness

• Youth employment

• Health and wellbeing

Who provides social investment?

• Big Society Capital (the UK’s wholesale social investor)

• Social Investment Business (SIB)

• Access – The Foundation for Social Investment

• Community Development Finance Institutions (CDFIs)

• Charity Bank

• Triodos Bank

• Resonance

• Local social investment funds

• Impact‑focused angel investors

These organisations specialise in supporting ventures that mainstream banks often overlook.

Eligibility criteria (typical)

Social investors usually look for:

• A clear social or environmental mission

• Evidence of impact or a plan to measure it

• A viable business model

• Ability to repay (even if revenue is irregular)

• Strong governance and accountability

• Community benefit or public good

They are more flexible than commercial lenders and often provide hands‑on support.

Pros

• Mission‑aligned funding

• More flexible terms than commercial loans

• Supportive investors who understand social impact

• Can unlock grants or blended finance

• Suitable for organisations excluded from mainstream finance

• Encourages sustainable, long‑term growth

Cons

• Still repayable. Not a grant

• Impact reporting requirements can be time‑consuming

• Not suitable for purely commercial businesses

• Due diligence can be detailed

• Some products are complex (e.g., quasi‑equity, SIBs)

Social investment makes sense when an organisation:

• Has a social mission at its core

• Needs capital to grow or deliver services

• Wants investors who understand impact

• Can generate revenue to repay finance

• Is a CIC, charity, social enterprise, or mission‑driven SME

Government-Backed Schemes

There’s more information that you might find useful in a separate document.

Typical Funders: UK Government, local authority schemes and affiliated agencies (e.g., British Business Bank).

Eligibility Criteria: Varies by scheme; often includes business size, sector, and location.

Pros:

·         - Favourable terms and interest rates.

·         - Support for high-risk ventures.

·         - Access to mentoring and resources.

Cons:

·         - Complex application processes.

·         - Limited funding windows.

·         - May require matching funds or guarantees.

At February 2026

1. Start Up Loans (British Business Bank)

A government‑backed personal loan for business purposes, aimed at new businesses and those trading under 3 years.

• Loan amount: up to £25,000

• Interest: fixed 6%

• Extras: free mentoring and support

• Eligibility: UK‑based, viable business plan, credit checks

• Source: Business.gov.uk lists Start Up Loans as a key government‑backed option for new businesses

2. Growth Guarantee Scheme (GGS)

Successor to the Recovery Loan Scheme. Supports SMEs that want to invest and grow by giving lenders a government guarantee.

• Loan types: term loans, overdrafts, invoice finance, asset finance

• Eligibility: UK‑based SMEs, viable business, not in financial difficulty

• Purpose: growth, investment, working capital

• Source: Business.gov.uk confirms GGS as a government‑backed loan scheme for small UK businesses

3. Government Grants (various departments)

Grants are non‑repayable funds for specific purposes such as innovation, energy efficiency, digital adoption, R&D, exporting, or regional development.

• Eligibility: varies by scheme (sector, location, activity)

• Examples: Innovate UK grants, local authority grants, energy efficiency grants

• Where to find them:

  • Find a Grant service (central government grants)

  • Local Growth Hubs

  • Innovate UK

• Note: Highly competitive, often with strict reporting requirements.

4. British Business Bank Programmes

Beyond Start Up Loans and GGS, the BBB also supports:

a. Regional Investment Funds

Funds such as the Northern Powerhouse Investment Fund, Midlands Engine Investment Fund, and Cornwall & Isles of Scilly Investment Fund provide debt and equity finance to SMEs.

b. Future Fund (historic)

Previously supported innovative companies during COVID‑19; now closed but relevant for context.

5. Innovate UK Funding

Supports innovation, R&D, technology development, and commercialisation.

• Types: grants, loans, innovation competitions

• Eligibility: innovation‑driven businesses

• Often co‑funded with industry partners or research bodies.

6. Local Authority & Devolved Government Schemes

These vary by region and may include:

• Business growth grants

• Digital transformation grants

• Green/low‑carbon grants

• Export support

• Town‑fund or regeneration‑linked business support

You can find many of these through the Find a Grant service or local Growth Hubs.

7. Community Ownership Fund / Social Investment Schemes

For social enterprises, community groups, and mission‑driven organisations.

• Grants and blended finance

• Often tied to community assets, social impact, or regeneration

• Listed on Find a Grant and social investment portals.