Everything You Need to Know About Startup Business Loans

When looking through your options for financial assistance to get your new business up and running, you may come across information on startup business loans. You may also feel you need some help finding out more about them, which is why we’ve written this handy guide on what they are, what they do for you, and how to get the loan that’s right for your business.

What is a Startup Business Loan?

In most cases, when people refer to and search for a “startup business loan”, they mean the Start-Up Loan. This is an unsecured personal loan backed by the UK government, which can offer a new business owner between £500 and £25,000 in order to get a first time startup off the ground, or help them to grow a business that has been trading for fewer than 24 months.

Keeping the loan available for this extended period of time allows small business owners to access funding they need over the first two years of trading. So, if they ever need a financial injection into their work to get their company growing (potentially after a misstart), they can find it.

Startup business loans can be spent on any number of things that are related to a firm and its assets. These include stock and equipment, marketing and promotional expenses, or even new premises such as storage spaces and offices.

Can You Only Borrow Up to £25,000?

An individual person can borrow up to £25,000 under the government-backed startup loan scheme. However, if there are several directors in your company and you all apply for individual loans, you can increase this amount. The maximum loan amount available to a single business is set at £100,000.

It’s also possible to borrow more from private lenders offering different forms of startup business loans and other types of funding outside of the government scheme.

Business startup ideas

Other Types of Startup Business Loans

The government-backed Start-Up Loan will normally be the first source of funding you look into when you need financial backing for your business. If your business qualifies, the guarantee means that your application might have a better chance at acceptance than if you look for another, comparable loan that doesn’t fall within the scheme.

It’s also important to note that the government guarantee is only there to cover any losses to the lender. If you default on repayment, it will affect your personal credit score and could cause you issues further down the line if you ever apply for future credit. The lender may also take measures to recover the debt, which might mean you’ll be issued with a County Court Judgement (CCJ) and lead to your business being caught up in it.

That’s why you should always remember that there are other types of startup and small business loans available from a range of different sources, including high street banks and private lenders. These will all have different terms, pricing, and limits, and are distinct from the government scheme even if they are also described as a form of startup business funding. This is because they’re specifically tailored to first time startups and new businesses.

Some of these startup business loans can be taken out without a personal guarantee or any security, but you may also have to pay more in interest in comparison to the government-backed loan.

Other Small Business Loans and Grants

As well as getting help through different government business loans and grants, there are a number of different methods of getting the funding you need for your first time startup or small business. These include business startup grants from organisations across the UK and small business grants from trusts and other sources.

Take a look at the information we have on each here and find the funding that works best for the firm you want to run.


How is a Startup Business Loan Different to Business Grants?

The difference between any loan and a grant is repaying it. When you take out a loan, you’ll need to repay the amount you’ve borrowed plus a certain amount of interest in a set number of repayments. When you’re given a grant, you won’t have to pay back the money you were given.

The government Start-Up Loan has a fixed interest rate of 6% per year, and small business owners can repay the money over a period of one to five years. There are no application fees and no early repayment fees, making them cost-effective for those who are just starting out and don’t have large budgets to spend.

Other startup loans that are offered by private lenders will add different amounts of interest to the amount borrowed as a charge for their services.

How Do Startup Business Loans Work?

They work in much the same way as any other kind of business loan. You will borrow money from a specific lender, and this money will need to be repaid with interest over a certain period of time. There is only one key difference: startup loan agreements are made with individuals, rather than with businesses.

As the loans are usually guaranteed by the government, lenders also have more assurance that they will get their money back. Often, this means the lending criteria won’t be as strict as it might be with other loans, though this may depend on a person’s or company’s individual circumstances.

How to Get the Right Startup Business Loan

It’s vital that you choose the right startup loan for your business if you want to be accepted. To make sure you’re getting the right one for your needs, you should think about how much you need to borrow and what terms you’re prepared to accept.

You’ll also need to make sure you’re taking your own circumstances into account. If you have poor credit rating, for instance, you may need to ask for a specific loan from companies which offer them to people with bad credit.

What’s the Best Way to Apply for a Start-Up Loan?

There isn’t any one “best way” to get a Start-Up Loan for your small business. You simply start the process on the government website, once you’ve made sure that you meet the following criteria:

  • You live in the UK
  • You’re aged 18 or over
  • You have (or plan to start) a UK-based business that’s been trading for less than 24 months

If you are applying for any other kind of business funding that is not backed by the government, lenders will have different criteria. These lenders will normally need to see a viable business plan before you can borrow the money, however.

You’ll need to speak to these lenders separately and privately if you want to apply for a loan from them.

Are There Things You Can’t Use a Startup Loan For?

There are some things you cannot use a startup business loan for. These include debt repayment, training qualification and education programmes, and investment opportunities that are not core to your business.

Are There Startup Loans Available for Home and Micro Businesses?

You may be glad to know that there aren’t any restrictions on the size or type of business you’re setting up, when looking for startup loans. As long as you meet the criteria set out by the government or the lender you’re borrowing from, you can apply for the funding. This means that a home or microbusiness can apply and be accepted.

There are also other types of loans, funding, and grants available specifically for smaller businesses from organisations across the UK, and other private lenders may offer “micro lending”.

Do You Need a Business Bank Account to Get a Startup Business Loan?

You won’t need a business bank account to get a startup business loan, because a startup loan is basically a personal loan that will be used for business purposes. However, getting a business bank account is highly recommended if you’re planning for your business to take off in the near future. This will keep your business finances separate from your personal finances, and protect your personal assets if something unexpected should happen.

Will Your New Business Need New Premises?

If you’ve just started your business and you want to stretch your budget as far as it can go, or even if you simply don’t yet know what you want to do with your startup business loan once you’ve been accepted, then why not consider using it to rent a luxurious serviced office space with a prestigious London address?

When you contact us and set up your membership, you’ll gain access to a range of comfortable, cost-effective office spaces across the capital, offered on flexible permanent and semi-permanent tenancies. Each of these can then be made over and transformed to suit the designs, beliefs, and values of your firm, and we’ll always be available to take care of the IT and phone services your business needs.

Alternatively, if you’re only just starting out and need a meeting room to host your potential lenders or investors, we can also provide a range of impressive spaces that they’re bound to remember. Get in touch today to book a viewing or to have any questions you’ve got answered, long before you’re scheduled to meet your lender.