Everything You Need To Know:
Startups In The UK What Are Startup Business Loans?
Startup business loans enable budding entrepreneurs to finance key requirements and fund the launch or early stages of their new company. Business owners can receive between £1,000 and £500,000 simply by applying online, as well as selecting a repayment plan which suits their business’s needs best, over a period of 1 - 5 years.
At SME Loans our startup loans for businesses are unsecured, which means you don’t have to worry about putting up any valuable business assets as collateral for the loan.
Who Funds Startups?
There are a number of different ways startups can access funding in the UK. The main types of lenders are:
- The government
- Individual investors
- Online lenders
For centuries traditional lenders, such as banks, have been the go-to source of finance for companies. However, in this day and age it can be incredibly difficult for SMEs to secure funding through such traditional means, and even harder for startups to do so. Read More »
This is predominantly because banks now tend to focus on larger corporate borrowing, as well as imposing the most rigorous application process and strict lending criteria by far.
Loan 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 borrow larger loan amounts from banks, startups can struggle to secure funding due to the fact their business models are unproven, and they have a lack of sales history. Ultimately, making them a riskier investment for a bank. « Show Less
Online lenders provide more options and make it easier for startups to get approved and access quick finance. Unlike banks, when browsing online you will be able to find lenders that offer loans to businesses with bad credit. Read More »
Online lenders present startup business owners with more choices and flexibility at a simple click of a button. A visit to a bank could leave you with 1-2 business loan options maximum whereas when browsing online far more results can be yielded.
The internet has made life more convenient for all of us, and we can all benefit from the speed in which it allows us to get things done. Online loan applications can be completed in under an hour - at SME Loans our 1-2 page application form can take just minutes to complete, as opposed to the weeks it can take to get approved for a startup business loan from a traditional lender.
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. Lots of lenders also offer more personalised services and will send you email and text reminders for deadlines to help you manage your finances. « Show Less
- Online Loans - no phone calls and no paperwork, just one simple application
- Traditional Lenders - extensive paperwork, multiple phone calls and face to face follow-ups Read More »
- Online Loans - high approval rates and all credit histories welcome
- Traditional Lenders - strict criteria, good credit score required
Pay Out Times:
- Online Loans - access cash in as little as 48 hours!
- Traditional Lenders - pay out times vary, but it could take weeks to receive funds « Show Less
Why Choose Us?
At SME Loans, we recognise the difficulties startups face when sourcing funding in their early stages. We aim to provide a quick and affordable online lending service, delivering all the help and support required wherever necessary.
Registering Your Startup What Costs Are Involved?
When setting up a startup business in the UK, it's necessary to register it with Companies House. As a private limited company, you can keep any profits made after tax, it has separate finances from your personal finances and it is legally separate from the people who are employed to run it.
Registering Your Company
In order to register with Companies House, you will need to prepare:
- An appropriate company name (this cannot be the same as another registered company and must end in Limited or LTD. You can check Companies House register to make sure you aren’t duplicating names) Read More »
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. All codes can be found on Companies House SIC code list)
With all this information to hand, you can easily register your business online. Once you’ve registered, you will receive a certificate of incorporation, confirming the business’s legal existence.
In 2017, leading digital marketing expert Digimax conducted research to find out more about the strategies UK startups had used to make their businesses financial successes. Of those interviewed, 69% felt that underestimating costs was their biggest mistake.
When it comes to your business, you must consider all of your startup and operating costs for up to 12 months ahead. Startup costs can 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 £2500 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
- Equipment and supplies
- Sales, advertising and marketing
- Website hosting
- Vehicle costs
Any professional services from accountants, lawyers etc.
Once you have worked out your startup 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 can’t afford to fund the launch of your business, 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.
Expert Advice: For advice and guidance on writing a successful business plan refer to gov.uk. Here you will find business plan templates and examples to help get you going.
Scaling Up Your Business In Year 1 Startup Business Loans To Achieve Maximum Success
As startups proceed to the growth stage they are looking to increase revenue while keeping costs low.
Research shows that over 70% of startups in the UK struggle with scaling up, which is why startup business loans can provide valuable support. It’s essential to time it right, be sure you’re ready for exponential growth and have an awareness of the main challenges being faced.
In this section, we’ll walk you through the growing pains that startups experience when scaling up, and give you expert advice for successful growth.
Can I Get A Business Loan In Year 1?
For companies looking to secure a business loan in year 1, startup loans are the most viable funding option. It can be incredibly difficult for startups to secure a business loan from a bank in the first year of trading. This is because, new businesses are seen as the riskiest business to loan to, from the perspective of the lender.
When loaning money, lenders will look at credit history, the amount of free capital and collateral a business has. Startups are unfortunate in the sense that they aren’t typically established enough to meet strict lending credentials. At SME Loans, we recognise both the vital importance of startups in the economy, as well as the importance that they have enough finance to grow their ventures. For this reason, we have lenders on our panel who can offer funding up to £500,000.
Scaling Up Effectively
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? Read More »
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. « Show Less
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. Read More »
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. « Show Less
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. Read More »
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. « Show Less
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. Read More »
- 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 mailouts using email service providers like Mailchimp
- Keep your customer support interactions in one place using packages like Zendesk Suite « Show Less
Top Tip: Don’t be afraid to ask for advice! Join the Federation Of Small Businesses FSB Connect and gain access to networking events across the UK.
Achieve Maximum Success Using A Startup Business Loan
Set up costs: It can be costly getting business ambitions set up, from administrative costs to buying enough stock to serve customer demands, startups can benefit from loans in their early stages.
Cash flow issues: Running a business in its initial months can be challenging, and fulfilling increasing customer demands can 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 biggest 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 in the first few months of running a business. Read More »
Advertising & promotion: All businesses need to invest in PR and promotion, this is particularly important for startups who need to establish a growing customer base. A loan can help create and promote your brand, as well as launch marketing campaigns to spread the word.
Business Website: When setting up a business, a company website is crucial to gaining customers and further promoting your brand. Without a web developer it can be costly to create a well-designed, high-tech site, which is another way a business loan can come in handy. These days, over 50% of searches come from mobile devices, so make sure your website is easy to use for mobiles too.
Recruiting Staff: 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’s success significantly.
Be Careful With Your Loan: 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 money to prevent common business spending mistakes.
- If you can, put your business loan in a separate account to your normal business account, transferring the money over 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 loan repayments to make sure you never miss or are late on repayments. « Show Less
Why Choose Us? We care about your business making the most of its loan and publish fresh and relevant content for startups on our SME Loans Blog.
Funding Options For Startups Business Finance Products
Finding the funding your startup needs can feel like an uphill battle. Lenders are usually less confident about lending to businesses that are still in their early stages due to the uncertainty surrounding their success.
However, at SME Loans we seek to find the potential in small, growing businesses and offer unsecured startup business loans with funding up to £500,000. The repayment period on startup business loans can be as flexible as your startup needs, so you can pay back the money over a one to five year period.
What Are The Alternatives?
Angel investors are high-net worth individuals looking to invest their own money into opportunities. They can provide finance and 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 funding: Read More »
- 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. « Show Less
It’s true that banks offer business loans, but it is incredibly difficult for startups to obtain loans from banks due to the fact that new businesses are the riskiest loans that banks encounter. Banks will often deny startups business loans due to their lack of experience, management and customer base.
Crowdfunding as a funding product is growing rapidly in popularity. With this type of funding, 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. Read More »
Also known as peer-to-peer lending, debt-based crowdfunding functions similarly to bank loans, except that you are lending from a number of different people. Using debt-based platforms, businesses get assessed for credit-worthiness before they can get improved. They work more like marketplaces bringing together lenders and those needing loans. Investors are then able to decide the appropriate interest rate for the loan.
With debt-based crowdfunding, 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 harm your credit report further.
This is the process where people invest in a startup 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 type of 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 a handmade product, thank you card 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 « Show Less
The Application Process Why Choose SME Loans?
We offer startup 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, at SME Loans we want to help all businesses, even those with poor credit scores and will look at a number of factors before making a decision.
Is Your Startup Eligible For An SME Loan?
Requirements to apply:
- Aged 18 or over
- UK business
- Business has been trading for less than 24 months
Improving Your Eligibility
As a business owner, you’ll want to make sure that your personal credit history is in good health. You can check your credit history using Experian, Equifax or Callcredit. All three sites offer free credit score checks, and helpful advice for repairing poor credit history.
When you choose to apply for startup business loans with SME Loans, we guarantee a quick decision with no fees charged. At SME Loans we recognise the importance of startups and want to help build businesses into industry leaders.
Excluded business types:
- Chemical Manufacture
- Banking & Money Transfer Services « Show Less
Applying For A Business Loan In Year 1 / Business Loan In Year 2
You will first be asked some basic details to verify your startup. Please expect to be disclose:
- The amount you want to borrow
- Average monthly card sales
- Name of your business
- Number of years trading
Your application will then be directed further down the page, where you will be asked to fill in your contact details:
- Title, first name and surname
- Position in company
- Email and phone number
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 approved business finance suppliers.
Once the application has been reviewed by a lender, one of their dedicated account managers will be in touch to discuss the terms of your loan agreement. At this point you are welcome to ask the lender anything you are unsure or have concerns about, including repayment plans, to make sure there are no nasty surprises along the way.
After you have carefully read through all the terms of agreement, you will need to sign all of the relevant documentation and return it to the lender.
You will then be able to access the money from your account in just 48 hours.
Please be advised that when you apply for a business loan for a brand new company, your chosen lender may require you to sign a personal guarantee.
What is a personal guarantee? A personal guarantee is a legally binding signed agreement that states that if your startup defaults on the loan repayments, you will be personally liable for paying back the money to the lender.
Why do you need one? As the loans we offer our unsecured, you aren’t required to secure the loan against an asset used as collateral. Unlike secured finance, there is nothing to secure the loan against, so the lender still requires reassurance that they will have a way of getting their money back, in the event your startup defaults on repayments.
How risky are personal guarantees? If you are satisfied with your business’s financial situation, and confident that you’ll be able to pay back the loan repayments on time, then you don’t need to worry about signing a guarantee