Start-up funding: Is there an alternative to a bank loan? by Neil Debenham

Not everyone has bags of cash saved or a pot of inheritance to start up a new business. And not everyone wants to spend years paying back a bank loan on top of their mortgage, car loan and a raft of other household bills. 

If you’re a small start-up with no track record of making money, is there an alternative to approaching a bank for a loan? Financial business consultant Neil Debenham chats all things funding and where new companies can turn.

Start-up Loan Scheme

Launched by the government in 2012, the scheme is a fixed-interest loan of between £500 and £25,000 and is offered to anyone looking to start or grow a small business. This must be paid off within five years.

To be successful in your application you’ll need a brilliant business plan and a good cashflow forecast to prove you can pay back the loan each month. You also get a business mentor for 12 months to help you with any stumbling blocks.


If you’ve got a genius idea for a business, you can ask the people of the UK to help you out. As well as raise cash and let people know about your idea, you give people the chance to invest.

Typically, those looking for funding support will set up a profile detailing their idea. They’d then use social media and their personal networks to get the cash flowing. But it’s important to know the differences between the varieties:


If you have a great product to launch, platforms like Kickstarter ensures guaranteed sales before you even start making it. It’s a great way to raise capital to start off. 


This is all about using a platform to turn fans into shareholders – the best option for non-product business ideas or those who large amounts of cash to expand.

Peer-to-Peer Lending

How to borrow cash without going near a bank? Peer-to-peer or P2P lending are online services where those who want to borrow cash for businesses are matched with those who want to lend their cash.

Neil Debenham says: “This funding method is popular as it cuts out the middleman and reduces overheads. However, it can be seen as a risky business for a lender to be directly connected to a borrower who may fail to pay. These types of services often offer high rates of interest for lenders and lower rates for borrowers.”

Angel Investors 

There are people who invest their own cash in a small business in exchange for a small stake – usually up to 25 per cent of the business.

Start-ups who take up such an offer – think Dragon’s Den – also get mentoring and support. If a business does take up the offer, they get the investor’s time, skills and often a hand with contacts, which can prove incredibly useful. 

It’s important that the Angel investor and the business owner don’t clash as they’ll need to foster a strong relationship to spend at least five years working together to grow the company. 

Family Loans

The simplest way to get cash, which is highly unlikely to be lent with interest, is by asking a family member. 

Neil Debenham advises: “Relatives and loved ones will probably know all about your idea already and may be keener to trust you with their hard-earned cash than an unknown. 

“However, if you have a falling out with a family member you can open a can of worms when you try to continue a loan. The likelihood is they want their money back straight away!”


A bank overdraft is a quick fix for flexible cashflow; the idea being you can quickly repay as the business picks up momentum.

Many of the well-known high street banks only charge interest on the amount withdrawn and some offer good packages for businesses, for example, no set minimum amount to repay each month or deals for existing customers. 

Be wary that some interest rates are charged above the base rate, making the overdraft repayable on demand.

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