Business loans for startups

A startup loan is a type of finance designed to help new businesses that have been trading for just a few years (typically 3 or less) pay for the essentials you need to run your business in that key early stage – even if you don’t have much in the way of credit history.

The British Business Bank’s Start Up Loans scheme provides government-backed loans for UK small and medium-sized enterprises (SMEs) under 3 years old, delivered through partners at a fixed interest rate via the Start Up Loans Company. The scheme also comes with 12 months of business mentoring, which can be a good idea if your company is very new. Find out more in our Start Up Loans review.

Am I eligible for a government-backed loan?

As with any form of credit, you’ll need to make sure that your business can realistically repay the loan before you apply. Your company will also need to meet the following criteria:

• Trading for no more than 3 years.
• Limited company, sole trader or partnership.
• Based in the UK.
• The director that applies will need to be aged 18 or above and a resident in the UK with the right to work in the UK, and they will need to pass credit checks.

Your eligibility also depends on the nature of your business, your business model and how you intend to use the funds: Start Up Loans are not available for certain kinds of business costs. You can find more details on the types of businesses that are excluded and what loans can be used for on the Start Up Loans website.

How to apply

If you’ve reviewed all your startup loan options and decided that the government Start Up Loans scheme is the right choice for your business, you can apply through the Start Up Loans website.

• Complete the online registration form and choose a “delivery partner” to support you with your application. These are business support organisations with the expertise to help you make a successful application.
• Provide information about the business, how much you want to borrow and how you intend to use the loan. You’ll need to provide a business plan, cash flow forecast and personal financial plan.
• You can access help and advice resources on the website as well as live chat support.
• Once approved, you’ll need to sign a loan agreement. After you return this, you’ll get the money and have access to 12 months of free mentoring to help you build a successful business during this crucial early stage.

What if I’m not eligible for a government-backed loan?

If you can’t get this loan, there are other options. There are a number of lenders offering business loans, and some of them have products designed for the specific challenges you face when you first start a business, such as a lack of business credit history.

Of course, you and your business will still have to pass some eligibility checks to borrow from these lenders, just like you would with a personal loan or any other kind of credit. And not every lender will be prepared to offer loans for every kind of business or for every spending purpose. But many individual lenders will be less prescriptive with their lending criteria for startup business loans than the government’s Start Up Loan scheme.

Read our guide to the best business loans and financing options.

What other options are available for startups?

• Business credit cards work in a similar way to personal credit cards, but you can add more cardholders and potentially track and manage spending from a centralised platform. You only pay interest on the money you spend, and if you always pay off your balance in full at the end of the month, you typically won’t be charged interest (unless you, for example, withdraw cash on the card), making this ideal for very short-term borrowing. Find out more about business credit cards for startups.
• A business overdraft works much like a personal overdraft: it allows you to overdraw your business bank account up to a specified limit, making it hassle-free to manage a variable cash flow. However, you’re likely to find higher credit limits and more competitive rates with another form of finance.
• A line of credit could offer a similar degree of flexibility to a business overdraft or credit card, but with the opportunity to borrow more money. You’ll usually only pay interest on the amount you borrow and only for the amount of time you borrow it. You’ll have the freedom to repay or top up as it suits you, subject to credit and minimum repayment limits.
• Invoice financing allows you to unlock the value in outstanding invoices. You sell the invoice to the lender for a percentage of its value, allowing you immediate access to funds rather than having to wait for your creditors to pay you.
• Asset financing is a form of business loan that is used to cover the cost of a business asset. The loan is secured against the asset itself. Compare asset finance options.
• With a merchant cash advance, a lender will give you a lump sum for a fixed fee (rather than ongoing interest). You will need to repay a percentage of all your sales until you have cleared the debt, which makes this an appealing option for businesses with a high degree of fluctuation in their income.
• Peer-to-peer business lending companies connect investors with borrowers without the need for a middleman. These companies have lower overheads and, in theory, pass these savings onto customers in the form of lower interest rates.

Frequently asked questions

• Which lenders offer startup business loans?

  Many business lenders offer loans to startups, and some, such as Tide, have products specifically designed for companies that have been trading for a certain time. See our guide to business loans for more.