A Guide to Government Business Loans in the UK

If you are looking to start, grow or expand your business, you may need to secure funding. One way to do this is through a government business loan.

New governments, new Budgets, and changing circumstances across the country can affect what government business loans are available at any one time. Many government lending schemes will also have deadlines attached, or specific eligibility requirements.

We take a look at what government business loans can be used for, the types of funding currently available, and how they differ from grants.

How do government business loans work?

In many ways, a government business loan is like any other type of business loan. You borrow a sum of money, and then pay it back in instalments, with interest on top.

In the UK, government business loans are usually offered by British Business Bank-accredited lenders. Sometimes, this will mean that the government, alongside other bodies, has provided a funding pot that the loans will be drawn from.

It may also mean that the government has provided a guarantee stating that if the borrower is unable to pay back the sum in full, then it will refund the lender a portion of the outstanding amount. The Recovery Loan Scheme (RLS) is an example of such a guarantee in action.

Government business loans can range from specific small business loans to dedicated start up loans.

What can I use a government business loan for?

Typically government business loans allow you to take advantage of a number of opportunities, including:

• starting, or funding, your new business through a start-up government loan
• financing the growth or expansion of your existing business
• covering the costs of your business operations, such as buying equipment, purchasing stock and paying staff wages
• helping your business recover from the impact of the Covid-19 pandemic

Types of government small business loans

Below is a selection of the government business loans and funding opportunities currently available.

Recovery Loan Scheme

Originally introduced in the March 2021 Budget to help promote investment and growth during the Covid-19 pandemic, the Recovery Loan Scheme (RLS) has been extended multiple times, most recently to 30 June 2024.

Under the latest rules introduced on 1 August 2022, businesses now longer need to prove they were negatively affected by the Covid-19 pandemic in order to access the loan.

Eligible organisations can receive up to £2 million per business group through the scheme, or £1 million per group for businesses operating within the Northern Ireland Protocol.

Is my business eligible for the Recovery Loan Scheme?

In order to be eligible for a Recovery Loan, your business must:

• be trading in the UK
• have a turnover of £45 million or less
• be viable
• not be in financial difficulty

» MORE: How to apply for the government Recovery Loan Scheme

Greater London Investment Fund

The Greater London Investment Fund (GLIF), which is supported by the Mayor of London, combines resources and funding from the European Investment Bank, ReLondon, The Local Enterprise Partnership for London (LEAP) and Funding London.

GLIF provides loans and equity finance for small and medium-sized enterprises based in the UK’s capital:

• Debt finance: GLIF offers businesses loans through The FSE Group. The FSE Greater London Small Fund is for business loans between £100,000 and £500,000, while the Large Loan Fund is for finance between £500,000 and £1.5 million.
• Equity finance: the equity finance arm of GLIF is managed by the MMC Greater London Fund. Its core strategy is to invest between £50,000 and £2 million in early-stage businesses looking to raise finance.

To apply for any of the above, you will need to contact the relevant GLIF fund manager. You can find more details on the GLIF website.

Northern Powerhouse Investment Fund

The Northern Powerhouse Investment Fund (NPIF) is a collaboration between the British Business Bank and 10 Local Enterprise Partnerships (LEPs), and combines funding from the UK government, the European Regional Development Fund, the British Business Bank and the European Investment Bank.

It is focused on the North West, Yorkshire and the Humber, and the Tees Valley.

The funding options available are broken down into three categories:

• Microfinance: small business loans between £25,000 and £100,000, designed for people looking to start their own business, or established small and medium-sized enterprises (SMEs) hoping to grow their business, that are struggling to obtain funding. To be eligible, you will need to show you have been unsuccessful in applying for finance from traditional lenders.
• Debt finance: business loans between £100,000 and £750,000 for early-stage and established businesses that can demonstrate growth potential.
• Equity finance: early- or late-stage equity funding, from £50,000 to £2 million, for start-ups or more established businesses with ‘high growth potential’. This involves you selling a stake of your business to an investor, or group of investors, in return for finance.

To apply for any of the above, you would need to find a NPIF fund manager operating in your local area. You can do this on the NPIF website.

Midlands Engine Investment Fund

The Midlands Engine Investment Fund (MEIF) is a collaboration between the British Business Bank and 10 Local Enterprise Partnerships across the West Midlands, and East and South East Midlands.

It is supported by the UK government, the European Investment Bank, the British Business Bank and the European Regional Development Fund.

The funding available to businesses comes in four categories:

• Small Business Loans: from £25,000 to £150,000, and available to start-ups and established SMEs that are struggling to obtain financing through traditional lenders.
• Debt finance: business loans from £100,000 to £1.5 million, for businesses with up to 250 employees that can demonstrate growth potential.
• Equity finance: later-stage equity funding up to £2 million. This involves you selling a stake of your business to an investor, or group of investors, in return for funding.
• Proof of Concept: early stage equity finance up to £750,000, in order to help get your business, or product, up and running.

To secure funding, you will need to apply through one of the MEIF’s allocated fund managers. These can be found on the MEIF website.

Cornwall & Isles of Scilly Investment Fund

The Cornwall & Isles of Scilly Investment Fund (CIOSIF) is supported by the UK government and the European Regional Development Fund, working with the Cornwall and Isles of Scilly LEP.

The two forms of funding through the CIOSIF are:

• Debt finance: includes small business loans from £25,000, and debt financing options from £100,000 to £1 million for businesses with up to 250 employees that can demonstrate growth potential.
• Equity finance: funding from £50,000 to £2 million. This involves you selling a stake of your business to an investor, or group of investors, in return for funds.

This funding can be accessed through one of the CIOSIF’s allocated fund managers. These can be found on the CIOSIF website.

Scottish Growth Scheme

The Scottish Growth Scheme provides business finance to organisations in Scotland through a £500 million package backed by the Scottish government.

• Debt finance: includes business loans of £25,000 to £250,000, to support a variety of growth plans for actively trading Scottish businesses.
• Equity finance: of up to £2 million, for innovative companies at an early stage of development, or organisations with high growth potential.

This funding can be accessed through the Scottish Growth Scheme’s dedicated fund managers. You can find out more information at MyGov Scotland.

Development Bank of Wales

The Development Bank of Wales was set up by the Welsh government to make it easier for businesses to get finance. The Development bank offers:

• Business loans: from £1,000 to £5 million, for starting a new business, or strengthening and growing an existing organisation.
• Equity investment: from £50,000 to £5 million for established businesses.
• Seed finance: between £50,000 and £250,000 for pre-revenue tech start ups.
• Buying a business: finance up to £5 million for the purposes of buying another business.
• Property development: between £150,000 and £6 million for property development projects in Wales.

You can find out more about how to access funding through the Development Bank of Wales.

Northern Ireland Small Business Loan Fund

The Northern Ireland Small Business Loan Fund (NISBLF) is part of Invest NI’s Access to Finance Strategy. Invest NI is part of Northern Ireland’s Department for the Economy, and is designed to help grow the local economy.

The NISBLF offers:

• Start up loans: up to £15,000 for businesses trading for less than two years.
• Business loans: up to £100,000 for businesses that have been trading for more than two years.

For more information on how to access these funds, you can visit the NISBLF website.

Other government business loans

You can find the full range of available government business loans, and other forms of government-backed funding, using the Department for Business, Energy & Industrial Strategy’s search tool.

What are government start up loans?

Aimed at entrepreneurs looking to start a business, or grow their new business, the government-backed Start Up Loans scheme can provide funding from £500 to £25,000, at a fixed interest rate of 6% per annum. All owners or partners in the business can individually apply for a Start Up Loan, up to a maximum of £100,000 per business.

It is structured as an unsecured personal loan. This means that you don’t need to put up any collateral to access the loan, and that you, not your business, is personally liable for paying it back.

Since its inception in 2012, the Start Up Loan scheme has offered 95,000 loans to UK start ups, at an average of just over £9,000 per loan.

Am I eligible for a Start Up Loan?

In order to be eligible for a government Start Up Loan, you will need to be:

• starting a new business, or have been trading for up to 36 months
• at least 18-years-old
• a current UK resident, with the right to work in the UK, and basing your business in the UK
• unable to secure finance from other sources
• starting or running a type of business that is eligible under the terms of the scheme

You will also need to pass the lender’s credit checks.

» COMPARE: Start Up Loans

Are government business loans the same as grants?

It is important to note that government business loans are not the same as grants.

A business grant will not need to be repaid. A business loan, on the other hand, will need to be repaid, with interest on top.

Therefore, before applying for a business loan – whether it is a government business loan, or one from a traditional lender – you should make sure you are confident in your ability to pay the loan back over the specified period.

» MORE: Top small business grants in the UK

How to apply for a government business loan

Since government business loans come in different shapes and sizes, so too do their application processes. However, it is a good idea to consider the following when looking to apply for a government business loan:

• Check if you are eligible: Don’t waste time filling out an application for a loan you can’t get. Make sure you and your business meet the eligibility criteria ahead of time.
• Get all your documents in order: You can potentially speed up your application, and improve your chances of being successful, by getting everything you need together ahead of time. This will include bank statements, financial accounts and proof of address.
• Put together a detailed business plan: There is a good chance you will be asked to submit a business plan when applying for a business loan, so the more detailed the better. You may even want to look into creating a cash flow forecast as well.

» MORE: How to write a business plan

Why have I been rejected for a government business loan?

As with applying for a traditional business loan, there might be a number of reasons why you are rejected for a government business loan. These could include one or more of the following:

• You don’t meet a scheme’s eligibility requirements: certain government business loans, such as the Recovery Loan Scheme and the Start Up Loan scheme, have specific eligibility requirements you may not meet.
• Your credit score isn’t high enough: when determining your creditworthiness, a lender may check your business and personal credit scores. If they are not strong enough, the lender may see you as too much of a risk to lend to and therefore reject your application.
• Your industry is seen as risky: certain sectors will be seen by lenders as riskier than others. If you operate in such an industry, you may find it harder to secure a loan.
• Your business plan isn’t well considered: when applying for a government loan, you may be asked to provide a business plan. If this isn’t up to scratch, it could lead to your application being rejected.

» MORE: How to write a business plan

What if I can’t get a government business loan?

If you are unable to secure a government business loan, there are other forms of funding you may want to consider.

Apply for a traditional business loan

If you haven’t been able to get a government business loan, you might be able to apply for a business loan from a traditional lender.

To be successful, you will need to meet that provider’s eligibility criteria, including satisfying its credit checks.

» COMPARE: Business loans

Bank Referral Scheme

If you are unsuccessful in applying for a traditional business loan, then you may be referred to a designated online lending platform through the Bank Referral Scheme. You will need to have applied through a participating bank to be referred.

With your consent, these platforms will review your information, and potentially match you with a suitable funding solution if you are eligible.

Improve your business credit score

One way to help your chances of securing business funding is by improving your business credit score.

Much like your personal credit score does for your personal finances, your business credit score reflects your business’s financial health and creditworthiness.

Although there is no quick fix, there are a number of steps you can take to try to improve your business credit score. These include paying bills on time, filing full accounts at Companies House, and only applying for credit (such as business loans) when you absolutely need to.

» MORE: How to improve your business credit rating

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