Everything You Need To Know:
What is a start up loan?
A start up loan is a type of finance designed to help new businesses that have been trading for less than 24 months. Start up business loans enable budding entrepreneurs to pay for key requirements, such as funding the launch or early stages of their new company.
Startup business loans are usually unsecured so there is no need to provide valuable business assets as security. With a start up finance:
- Receive between £1,000 - £500,000
- Repay over a period of 1 - 3 years
- Benefit from competitive interest rates
How to get a startup business loan?
Business owners can get a startup business loan from traditional lenders such as banks or alternative lenders such as online lenders and credit brokers. New businesses can find it particularly challenging to secure funding from lenders because they are perceived as ‘higher risk’.
Your chances of being approved decrease with a limited trading history and lack of considerable capital or collateral. Luckily, there has been a rise in alternative finance providers, and nowadays, start-ups have more options than ever before. You can get start up loans for new businesses from:
- Online lenders
- The government
Online lenders & Credit Brokers
Online lenders and Credit Brokers provide financing options for businesses, making it easier for new businesses to get approved for quick finance. They provide start-ups with more choices and flexibility at a simple click of a button, and some lenders that offer funding to businesses with bad credit.
Because applications can be completed entirely online, the whole process is sped up, and funds can be accessed in just 24 hours - as opposed to the weeks it can take to get approved from banks or the government.
As well as this, online lenders tend to have extremely transparent fees and loan terms. So, when you borrow as a business owner, you’ll know exactly how much you need to pay back and when you need to make repayments. Many lenders also offer more personalised services and will send you email and text reminders for deadlines to help you manage your finances.
- High approval rates
- All credit scores welcome
- Quick payouts
For centuries, traditional lenders like banks, have been the go-to source of finance for companies. However, in this day and age, it can be challenging for SMEs to secure funding through such conventional means, and even harder for recently launched businesses to do so.
This is predominantly because banks now tend to focus on larger corporate borrowing, imposing rigorous application processes and strict lending criteria with low approval rates.
Applications with banks are lengthy; after submitting the relevant documents, you’ll probably need to schedule a follow-up or book an appointment with your local branch to discuss the application in person. It can take weeks or even months to hear back, and even longer to receive the funds to your account.
So, whilst you can often borrow larger amounts from banks, fresh ventures tend to struggle because their business models are unproven, and they have a lack of sales history.
- Strict lending criteria
- Good credit score required
- Payouts vary from weeks to months
Can I get a startup loan during COVID-19?
Yes, it is still possible to get a startup loan during COVID-19. However, due to the current economic climate it may be difficult to receive a startup loan from some traditional lenders. Nonetheless, the lenders we work with at SME Loans are still operating and providing finance despite the lockdown and pandemic.
If you own a startup and have struggled to secure a loan for your new business, you may want to consider our guide to sources of finance in COVID-19. It includes financial products that the government is currently offering for startups, as well as alternative financing that is equally as useful.
What is the interest rate like on startup business loans?
The annual percentage rate on startup loans will generally vary depending on the lender and the type of finance product you’re applying for. Furthemore, factors such as monthly turnover, credit score and the age of the business can all affect the rate of interest. Therefore, it is difficult to pin exactly how much the interest rate will be on a startup loan.
If you are unsure about the interest rate, always ask the lender that you are matched with how much the APR is.
Why choose us for your business start up loan?
We recognise the difficulties emerging businesses face when sourcing funding in their early stages. As a financial broker, we aim to provide a quick and affordable online lending service, matching startups to the best lender for their business and delivering all help and support as required. We offer:
- Unsecured funding options: Business loans and merchant cash advance products up to £500,000.
- Lightning-fast approval: Receive the funds you require in as little as 24 hours.
- Responsible lenders: A panel of lenders regulated and approved by the Financial Conduct Authority
- Bad credit options: Solutions for new businesses with adverse personal or business credit history.
- No application or set up fees: Apply online through our website, free of charge.
- Trusted account managers: Our team will do their best to find you the best lender for your business’ needs.
See how SME Loans can help your startup.
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Am I eligible for a start up business loan?
As a bare minimum to be eligible for a start-up business loan, your business is required to meet the following criteria:
- Business must have been trading for between 6 - 24 months.
- The business owner must be over the age of 18.
- The business must be registered in the United Kingdom.
As a bare minimum to be eligible for a start up business loan, your business is required to have been trading between 6-24 months. The business owner must be over 18-years-old and the business must be registered in the United Kingdom.
We offer venture business loans to all businesses in their first twenty-four months of operating. Whilst a business credit check forms a necessary part of the application, we aim to help all businesses, even those with poor credit and our lenders will consider a number of factors before making a decision.
How can I apply for a start up business loan?
New business owners can receive between £1,000 and £500,000 in unsecured funding by simply applying online. Choose a repayment plan which suits your business’ needs best, over a period of 1 - 3 years. Find out how to get a startup business loan in the UK:
- Step 1: You will first be asked some basic details to verify your startup. Please expect to disclose the amount you want to borrow, your average monthly turnover, the name of your business and months trading.
- Step 2: Your application will then be directed further down the page, where you will be asked to fill in your contact details, including your full name, position in the company, email and phone number.
- Step 3: After you accept the terms and conditions, you will be able to click ‘get my quote’. From here, your application will be processed and reviewed by one of our account managers.
- Step 4: Once you have been matched with a lender, the terms of your agreement will be discussed. At this point you are welcome to ask the lender anything you have concerns about, including repayment plans, to make sure there are no nasty surprises along the way.
- Step 5: Carefully read through the terms of the agreement, sign all relevant documentation and return it to the lender. You will then be able to access the money from your account in just 24 hours.
What can I use a start up loan for?
Startup loans come in the form of a personal or business loan and can be used to help businesses who have been trading less than 24 months grow. The loan can be used for business-related matters only, such as purchasing equipment, setup costs, recruitment, training and many other uses.
Practical uses of startup business loans
A business startup loan is a cash injection that can propel business growth and success. Startups have considerable costs in their early stages. Areas where this funding could be useful include:
Set up costs: It’s expensive getting business ambitions set up, from administrative costs to buying enough stock to serve customer demands, external finance can aid initial outgoings.
Cash flow issues: The first few months of running a business can be the most challenging. New businesses often require a cash flow injection in order to keep things running smoothly; without external funding, this can be tricky to succeed alone.
New premises: This is often one of the highest costs when establishing a startup. Leasing or purchasing an appropriate premise is crucial to financial success but can often be one of the hardest things to obtain when setting up a new business.
Advertising & promotion: All businesses need to invest in PR and promotion. It is crucial for smaller businesses that need to establish a growing customer base. This money can help create and promote your brand, and fund the launch of marketing campaigns to spread the word.
Business website: When setting up a business, a company website is crucial to attracting customers and promoting your brand. Without a web developer, it can be costly to create a well-designed, high-tech site, which is another way business finance can come in handy. These days, over 50% of searches come from mobile devices, so make sure your website is optimised for mobile use!
Staff recruitment: As your business grows, you’ll need to hire more employees. It can be a financial strain getting new people on your team, but if you put this off and invest too late, it can harm your business’ success significantly.
Be careful when you borrow
Receiving an influx of cash for your business can be exciting and overwhelming at the same time. It’s important to sensibly and effectively utilise the borrowed money to prevent common business spending mistakes.
- Where possible, put your business funds in a separate account to your normal business account, transferring the money across as and when you need it.
- Maintain a good rapport with your lender always. Keeping an open and honest dialogue ensures a good relationship should you have issues with future repayment deadlines.
- Set up automatic repayments to make sure you are never late or miss payment deadlines.
What are the pros of startup business loans?
Start-up business finance provides endless advantages to companies in their early stages of operating. A huge number of companies in the UK would be forced to cease trading without the safety net of external funding, which is why if you’re confident in your business plan you could reap the following benefits:
- Retain ownership: Unlike funding from investors, a business loan enables you to keep 100% of your business’ shares and decisions.
- Build business credit: If done responsibly, borrowing money can help to build your business’ credit score. This will increase your reliability in the eyes of the lender, enabling you to be approved for more funding in the future.
- Unsecured funding: As a newly established business, it’s unlikely you’ll have a vast amount of assets ready to put up as collateral. As unsecured startup business loans have no collateral attached, it keeps the equity within your business assets safe.
- Finance business growth: Give your business venture the cash boost it needs to succeed.
What are the types of start up business financing?
This form of finance is imperative for new business owners. There is a whole range of options available, and it’s important to do your research before making any hasty decisions. These are the main types of start-up business financing:
- Unsecured business loan
- Merchant cash advance
- Funding from Angel investors
- Bank funding
- Government funding
- Business Credit Cards
Unsecured business loan
These suit new businesses that are typically looking to borrow smaller amounts of money without providing collateral. Because they are ‘unsecured’, the lender will for business assets as collateral if the business fails to repay the loan. They usually have shorter repayment terms, and whilst unsecured start up loans are arguably less risky, they can come with slightly higher interest fees.
Merchant Cash Advance
A merchant cash advance is different from a traditional loan because the money you pay back is calculated as a percentage of your earnings, which is ideal for keeping repayments in sync with cash flow.
This flexible funding option has no APR attached and is essentially an advance on the revenue your start up is predicted to make on future debit or credit card sales. We offer this innovative product to newly established businesses that are able to provide 4 months’ worth of card and business bank statements.
- Access between £5,000 and £500,000
- Keep 100% of money generated through cash sales
- No interest charged, one inclusive fee
Business Credit Cards
Business credit cards may be a source of finance to consider if you’re looking for money. Often they are used as a short-term solution for borrowing money, rather than the long-term.
The other benefit of a business credit card is that it can be used by any business size, which means that it could be useful for startups who may only have a few personnel.
Angel investors are high-net-worth individuals looking to invest their own money into potential business opportunities. As well as providing finance, they can also bring valuable ideas and advice to startups to help them get off the ground. Whilst Angel investors can be beneficial, there are some things to be aware of before choosing this type of financing:
Although you don’t have to pay your investor back the capital, you are handing over equity in your business and a portion of your future net earnings.
You can expect angel investors to take a hands-on approach, they will want to be an active part in making any decisions regarding your startup.
It’s true that banks offer finance to businesses, but unfortunately, it’s incredibly difficult for new businesses to obtain this because they are the riskiest that banks encounter. These traditional lending facilities will often deny start up business loans due to a lack of experience, management and customer base.
Banks provide secured business loans that require you to offer up assets as collateral for the loan. By ‘securing’ the loan against assets, the lender has a way of reclaiming their money if your business defaults on payments.
Often traditional lenders will charge early repayment fees to recover the amount you would have paid them in interest.
Crowdfunding is a funding product that is growing rapidly in popularity. With this type of finance, businesses get small amounts of money from a number of people to raise the needed capital for their business. The investment is either for debt, equity or reward.
Also known as peer-to-peer lending, debt-based crowdfunding functions similarly to bank funding, except that you are lending from multiple different people. When using a peer-to-peer lending site, businesses get assessed for credit-worthiness before being improved.
Operating like marketplaces bringing together lenders and those needing loans, it is the investors who are then able to decide an appropriate interest rate. Whilst investors gain no physical reward nor any share in the business, instead they receive interest from the borrowing business on the money invested. Debt-based crowdfunding can be far riskier for startups than normal business loans:
- Interest rates are usually far higher with peer-to-peer lending.
- A lot of debt-based platforms change expensive fees to use their sites.
- If you have a poor credit score, you might find yourself unable to obtain funding for your startup, and an unsuccessful application can further harm your credit report.
This is the process where people invest in a new venture in exchange for shares in the business. As a shareholder, the investor then has partial ownership of the company and can then profit if the company does well.
It was previously restricted to wealthy people and business angels, but equity crowdfunding platforms have opened this up so that more people are now able to invest. Equity crowdfunding can be a smart way of financing your business, but it does come with its disadvantages:
- Almost all equity crowdfunding platforms charge monthly fees or success fees when matched with investors and granted money.
- It can take a long time to acquire enough funding from investors.
- You are forced to give up some ownership in your company.
This crowdfunding option involves individuals contributing small amounts of money to a business in return for some form of reward. As a business owner you will pitch your business on a platform and gain donations in return for rewards such as handmade products, thank you cards etc.
Rewards crowdfunding works well for startups in creative fields that want to test the market with their products or services. However, it comes with its own pitfalls:
- If you don’t manage to reach your goal amount through investments, you will have to forfeit any raised funds.
- You are relying on individual donations, so the amount you can obtain is relatively small.
- If you don’t have a patent in place, you risk exposing your business ideas to potential competitors.
Can I get a start up loan with bad credit?
Yes. Whilst many new business owners are under the impression it is impossible to get funding with a poor personal credit rating, this is simply not the case. There are lenders who specialise in providing start up business loans with bad credit and no collateral.
- We offer unsecured bad credit business loans as well as tips for improving your personal and business credit.
- A good starting point is to check your credit history for free using Credit Passport.
What are the best business start up loans UK?
With so many more providers now available, it can be difficult knowing which one to choose. From banks to credit brokers and online lenders, we have created a rough guide of the top 10 start up loan providers in the UK.
|Provider||Min loan amount||Max loan amount|
|British Business Bank||£1,000||£25,000|
|Virgin Start Up||£500||£25,000|
|Clydesdale Commercial||£25,000||£1.2 million|
- NB: Please take this table as a starting point, each provider offers its own benefits and drawbacks that you should research before making any decisions.
Alternative Providers to Consider
Transmit Startups is a lender who specialises in providing funding for startup entrepreneurs who do not have access to finance for their business. Transmit Startups offers low interest unsecured personal loans up to £25k, as long as the loan is used for business purposes only. The loans are accompanied by a flexible repayment period of 1-5 years, and no fees are charged for repaying early.
What are government start up loans?
Government start up loans are personal loans provided by the UK government up to £25,000. They can be used to start or grow a business and are offered alongside 1 year of free mentoring for business success. Repayment terms range from 1 - 5 years at a fixed interest rate of 6% per year.
- Application analyses creditworthiness, personal affordability and business viability.
- If your business ceases trading, repayments still have to be paid off in full.
Do start up loans require personal guarantees?
After making an application, it’s important to be aware that some lenders will require a personal guarantee as part of their agreement terms. Because there is nothing to secure the money against, a lender might want reassurance that they will have a way of getting their money back, if your small business defaults on repayments.
- What is a personal guarantee? A personal guarantee is a signed agreement making the business director personally liable for paying back the money to the lender.
- How risky are personal guarantees? You shouldn’t be considering a start up loan if you are not confident with your business plans or financial forecasting. Provided you will be able to pay back repayments on time, there is little need to worry about signing a guarantee.
What are examples of start up costs?
In 2017, Digimax conducted research to determine the strategies UK start-ups had used to make their businesses financial successes. Of those interviewed, 69% felt that underestimating costs was their biggest mistake.
Start up costs are the expenses incurred when creating your business. You should consider all operating costs for up to 12 months ahead. These include:
- Insurance and taxes (Employers Liability Insurance: This is a legal requirement as soon as you employ someone to work for your business. Fines can go up to £2,500 for every day you don’t have this insurance in place. Liability insurance protects all compensation claims made by employees for injuries caused at work.)
- Premises costs (including service charges and utility bills)
- Staffing and employment
- Stock purchase, delivery and storage
- Sales, advertising and marketing
- Website hosting
- Vehicle costs
- Any professional services from accountants, lawyers etc.
Once you have worked out your initial costs, calculate all your total overheads on a monthly basis spanning this 1 year period. Compare your costs against your sales forecasts, and if you don’t have enough working capital, you will then have a better idea of how much funding it is that you actually require and what a suitable loan amount is for you to apply for.
Consider hiring a professional to help with finances
Organising the finances of a new business can be particularly frustrating, and often leaves many new entrepreneurs feeling overwhelmed. There’s a lot of work that goes into creating any financial forecast, and this can be quite difficult and confusing for first-time entrepreneurs.
If you’re struggling, companies such as Unbiased are useful for finding affordable accountants and financial advisors to help aid the financial element of running a business. Hiring an accountant can be particularly useful, especially with their vast experience in helping other businesses. To learn more about hiring an accountant to help manage your startup finances, click here.
Expert Advice: For guidance on writing a successful business plan refer to gov.uk. Here you will find business plan templates to get you going.
How should I register my start up?
If you’re looking to register your startup, but are a bit unsure how to go about it, you can use 1st Formations. 1st Formations are a leading company formation agent based in the UK. Essentially, they’re one of the best at helping entrepreneurs register their startups.
Because they’re an authorised Companies House eFilings agent, it means they’re able to incorporate your startup within three hours. The service they provide is one of the most efficient and reliable in the UK, meaning you could start trading within a day.
1st Formations provide several registration packages for startups, but we’re going to look at the two most affordable and popular.
The digital package provided by 1st formations is the basic package. Nonetheless, it contains everything you need to incorporate your business:
- Registration of your private limited company (£12 Companies House filing fee included).
- Free business bank account.
- Free online company manager.
- Free domain name (.com or .co.uk).
- An email copy of your Certificate of Incorporation.
The privacy package is for entrepreneurs who want to keep their home address private and secure. When incorporating a startup, you will have to provide a business address. If you do not have a business address, you will be asked for your home address which will be accessible to the public via the Companies House website.
For those who want to protect their privacy, the privacy package provides a business address to ensure that your home address remains private. The privacy package includes:
- Everything from the digital package
- A registered office based in London (WC2) for 12 months.
- One service address based in London (WC2) for 12 months.
How to register your business independently
In order to register your new business with Companies House, you will need to prepare:
- An appropriate company name. This cannot be the same as another company and must end in Limited or LTD. You can check the Companies Companies House register to make sure you aren’t duplicating names.
- An address for your company. This must be a physical address in the UK and it can be your home address or the address of the person managing your Corporation Tax.
- The name of at least one director. Who will be legally responsible for running the company and preparing all accounts and reports.
- The details of at least one shareholder. As limited companies are limited by shares, they are owned by shareholders. As the director or business owner, you’ll own 100% of the company if you don’t have any other shareholders involved.
- Your Standard Industrial Classification (SIC) code. A code that describes the nature of your business and the economic activity that you’re engaged in.
With all this information to hand, you can easily start a new business online. Once you’ve registered, you will receive a certificate of incorporation, confirming the business’s legal existence.
NB: After getting the certificate, you will have three months to apply for Corporation Tax before you get fined a penalty.
What does it mean to scale up a business?
As start ups proceed to the growth stage, they are looking to increase revenue while keeping costs at a low. In this section, we’ll walk you through the growing pains that businesses experience when scaling up, and give you expert advice for successful exponential growth:
- Invest in the right people
If you want your business to scale up effectively, you need to invest time and effort into recruiting the right people for growth. Are employees bringing innovative ideas to the business? Are they willing to take on new and unfamiliar challenges because they care about helping the business grow?
Many startups don’t manage to achieve significant growth because they struggle to find staff with the required knowledge or skills, or more importantly - company fit. It’s important to take time to recruit people that share the same passion and genuine care for your business that you do.
Hiring employees on fixed-term contracts to start with can be a good way to gauge how emotionally invested they are to your business’s vision and success.
- Timing is everything
A large proportion of startups fail because of premature scaling. It’s important not to be in too much of a rush to scale up your business. All startups need time to experiment with things like customer segmentation, customer acquisition costs and product features.
As your business begins to scale up, it will be necessary to accelerate product development capacity, and before you do so, you must make sure your core products or services have achieved market-fit.
- Restructure roles when appropriate
As you take on more people, you must establish set roles and responsibilities suited to your employees’ skills. Functionalising roles will help to streamline your projects and priorities.
Adding management roles and duties will also help your business as you scale, as with effective managers in place to help guide your team, the business isn’t solely reliant on you as the owner.
Management and delegation will also empower your employees to work as hard as they can in order to move forward in your business.
- Automate Processes
Before you can successfully scale your business, you’ll need access to bigger and better business resources to help manage time and streamline tasks. Automation technology allows you to eliminate timely processes and remain competitive. Where you can, try to find ways to automate:
- Invest in Cloud storage to share business files easily and keep them securely backed up.
- Schedule social updates using platforms like Hootsuite.
- Send automated campaigns and mail outs using email service providers such as Mailchimp.
- Keep your customer support interactions in one place using packages like Zendesk Suite.
Frequently Asked Questions
If we haven’t answered all your questions about startup business loans, then take a look at some of the most frequently asked questions below.
What is a startup business loan?
A startup loan is a form of business financing which is intended to aid startup companies that have been running for less than 24 months. Startup loans usually come in the form of an unsecured business loan.
How can I get a startup business loan?
You can get a startup business loan by going to an online lender or a traditional lender. You may be asked to submit an online application form by some lenders.As a startup you will likely have to provide relevant documentation as the business would have only been trading for a limited amount of time.
Alternatively, you can search for other sources of business finance for startups on our guide. The guide post offers other external sources of finance to consider if you’re a startup looking for startup funding.
Why choose SME Loans for a startup business loan?
Here at SME Loans, we understand how difficult it can be for entrepreneurs to find funding for their startups. That’s why we work with a panel of top regulated lenders who are committed to helping you find the right startup loan. Our secure online application is quick and easy to fill out, to help make your process as smooth as possible
Do I need good credit to apply for a startup loan?
Getting a startup loan with a poor business credit score can be difficult for your business. However, it is not impossible, and you may be accepted by some lenders.
Nonetheless, it is much easier to be accepted for a loan with a good credit score. If you’re looking to improve your credit score then try reading our business credit score guide which explains what tools to use when checking and improving your business credit score.
How do I qualify for a startup business loan?
The lenders we work with all have a minimum requirement when it comes to startup funding. The criteria needed to qualify for a startup business loan includes:
- Business owner must be at least 18 years of age.
- The business must have been trading for between 6 - 24 months.
- The business must be registered within the UK.
How to apply for a startup business loan with SME Loans?
To apply for a startup business loan you just need to complete our online application. The application form requires you to provide some basic details about yourself and your business. One of our brokers will then be in contact with you to discuss your loan application further, to help us match you with the right lender.
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