{"id":1134,"date":"2022-01-04T02:40:10","date_gmt":"2022-01-04T02:40:10","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=1134"},"modified":"2025-07-02T00:42:17","modified_gmt":"2025-07-01T23:42:17","slug":"im-startup-founder-raise-capital-for-business","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/startups\/im-startup-founder-raise-capital-for-business\/","title":{"rendered":"I am a Startup Founder in the UK. How Do I Raise Capital for My Business?"},"content":{"rendered":"

Suppose you are the director and shareholder of your own company. So far, all your business\u2019 growth is due to your efforts and money. Now that you have a proven track record of success, you are looking to expand your business. Perhaps you could hire more employees to improve efficiency or purchase a new machine to reduce long-term variable costs. First, however, you need to raise additional funds. At the startup stage, you have two options for raising capital: debt or equity financing. This article will explain the basics behind both kinds of financing<\/a> and evaluate their advantages.\u00a0\u00a0<\/span><\/p>\n

Presumptions\u00a0<\/span><\/h2>\n

This article presumes you have already incorporated your business as a limited company, as it is the best business structure for raising capital.<\/span><\/p>\n

It also assumes you have incorporated using the unamended model articles of association. Articles of association are the documents that lay down the rules for running your company. The default and most common option is to use model articles when you incorporate.<\/span><\/p>\n

If you are unsure what sort of articles you have, you can check with <\/span>Companies House<\/span><\/a> to determine. Companies House is the public body tasked with regulating incorporated companies in England & Wales.\u00a0<\/span><\/p>\n

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Remember: if you are a company director, you must follow the articles’ rules. Failure to do so could result in criminal and civil liability<\/span>.<\/span><\/p>\n<\/div>\n

How to Finance<\/h2>\n

There are two primary ways of raising capital:<\/span><\/p>\n

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  1. borrowing money (debt financing); and<\/span><\/li>\n
  2. issuing more shares (equity financing).<\/span><\/li>\n<\/ol>\n

    A third form, often called hybrid financing, combines elements of both, but is not discussed in this article.<\/span><\/p>\n

    Debt Financing<\/h3>\n

    For most startups, debt financing will either take the form of a loan from a friend or family member or high-street bank such as Barclays or NatWest. <\/span><\/p>\n

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    Even if your company has borrowed more informally from friends or family, you should be aware that there may still be a legal obligation to repay the loan. Otherwise, they can sue your company for the amount.\u00a0\u00a0<\/span><\/p>\n<\/div>\n

    Debt Financing<\/span><\/h4>\n

    Debt financing is more flexible than equity financing because it is governed mainly by the loan terms, rather than company law. This is because loans are essentially contracts between the borrower (your company) and the lender (the bank).<\/span><\/p>\n

    For most startups, your company will have two lending options from a bank:<\/span><\/p>\n