Grants, Start Up Loans, business loans and equity compared for a downside month

Grants, personal startup loans, company borrowing and equity can all put cash into a business, but they do not produce the same bargain. Compare them against the company's purpose, stage and downside rather than asking which has the lowest headline price.

What to take away

Grant funding

A grant may avoid scheduled repayment and shareholder dilution. In exchange, the project must satisfy a defined public purpose, scope and evidence regime. Some awards require company contributions or pay against verified costs, so the cash-flow burden can arrive before reimbursement.

Innovate UK instructs applicants to check the competition-specific rules and submit through its stated service in the general application guidance. This route fits a scoped innovation project better than an open-ended need to cover payroll.

Innovate UK's Smart Grants are a named route for a scoped innovation project. They typically fund projects with total costs of £100,000 to £2 million, covering a share of those costs set by company size and project category.

The evidence burden is a full project plan, finances and verified costs for claims.

Government-backed Start Up Loan

The GOV.UK product record describes a £500 to £25,000 unsecured personal loan at a fixed annual rate of 7.5%, with repayment over one to five years. There is no application or early repayment fee at the recorded date. Applicants undergo a credit check.

This route offers clear published terms and mentoring, yet the individual carries the debt. It may fit a founder with a viable plan and manageable personal repayment exposure. It does not exchange cash for shares.

Compare: monthly payment, personal budget resilience, term, total interest and the consequences of business failure.

Commercial business loan

Borrowing by a company can preserve ownership while creating fixed payments and contractual conditions. Eligibility usually depends on trading evidence and affordability. The lender's "from" rate is not the applicant's price.

As one current example, Funding Circle lists loan ranges, starting rates and completion fees, while its eligibility journey restricts current applications by legal form. These are provider claims, not a market-wide benchmark or an offer to a particular company.

On an illustration, a £25,000 five-year company loan at a typical 7% to 15% a year repays roughly £495 to £595 a month and about £29,700 to £35,700 in total before fees. The rate depends on underwriting and security.

Equity funding

Equity has no scheduled loan instalment, but shareholders receive ownership and rights. The economic cost is uncertain because it depends on future company value, later dilution and negotiated terms. Campaign and legal expenses can also reduce net proceeds.

Crowdcube's issuer-facing page provides a documented platform route, while its risk notice makes clear that private-company investing includes loss, illiquidity and dilution risks. Founders should obtain the current issuer agreement rather than infer charges from investor material.

Take an illustration: £150,000 pre-money and £50,000 raised gives a £200,000 post-money value, so the new shares are 25% and the founder holds 75%.

A later round that dilutes the stake by 20% leaves the founder at 60%. The cash cost is the future value of the ownership given up.

Compare: pre-money valuation, fully diluted percentage sold, rights, platform and legal deductions, minimum close, campaign workload and governance after completion.

Put every route on one decision sheet

Use the same fields: cash required, permitted use, probability-adjusted receipt date, cash deductions, founder or company liability, ownership transferred, internal hours, evidence burden and fallback. Preserve the original units instead of forcing every cost into a misleading percentage.

The British Business Bank Finance Finder can help identify plausible finance types. It also advises businesses to seek independent specialist advice. A comparison narrows questions; it does not make the decision for the board.

All prices, eligibility statements and permissions need checking again immediately before publication or application.

Compare a downside month

Put each finalist into the same weak-trading forecast. Assume receipt is delayed, revenue misses plan and one project cost rises. For debt, watch the minimum cash balance after scheduled payments. For a grant, test the working capital needed before a claim is paid. For equity, model a smaller close and the ownership position after a later round.

A worked illustration uses a £15,000 Start Up Loan at 7.5% over five years. The payment is about £301 a month and the total repayable is roughly £18,000.

Assume opening cash of £8,000, planned revenue of £20,000 and costs of £18,000. A 30% revenue miss cuts revenue to £14,000. Costs unchanged, the month loses £4,301 and closes at about £3,699.

A second identical month takes it £602 below zero.

Record the trigger for abandoning or changing each route. This prevents sunk application effort from keeping an unsuitable option alive. The winning route should still finance the intended milestone without creating an obligation the founders or company cannot reasonably carry.

Before you act

Common questions

How should a founder test each option against a bad month?

Put each finalist into the same weak-trading forecast, assuming delayed receipt, missed revenue and one higher project cost. For debt, watch the minimum cash balance after scheduled payments. For a grant, test working capital before a claim is paid. For equity, model a smaller close.