Compare Start Up Business Loans

Start up loans and financing can help you meet your business goals, whether that’s beginning a new venture, or expanding your recently formed company.

There are a range of different funding options for start ups, including the government-backed Start Up Loans scheme (which is structured as a personal loan), as well as unsecured and secured business loans. There are also other forms of start up financing you could consider, such as asset finance, invoice finance, and business bridging loans.

However, it is important to stress that each of these products come with its own risks and requirements. This may include providing a personal guarantee, or putting up an asset, such as property or expensive machinery, as collateral that could potentially be repossessed if you default on your loan.

So before applying for any form of start up loan or finance, you should seriously consider how much you need, how long that money needs to last and how you’ll realistically meet your repayments.

Our comparison table shows the current deals on offer, and the loan terms and amounts available. You can also find out more about the government Start Up Loans scheme, as well as other forms of financing, with our detailed guide below.

Our guide to start up business loans

What is a start up loan?

Start up loans are a form of funding that can help get a business up and running or expand in its early stages. This can come in many different shapes and sizes. For example, a government start up loan is structured as a personal loan; other start up loans will take the form of business loans. It is important before borrowing that you are aware of the varying level of risk that comes with each of these products.

How do start up loans work?

As with any loan, a start up business loan sees you borrow a set amount and pay it back, plus interest, over an agreed period of time. You can get a start up loan directly from a mainstream lender such as a bank, from an alternative online lender, through the government Start Up Loans scheme or through a broker. Ultimately, the exact way a business start up loan works will depend on the type of loan.

Whatever the loan type, you’ll need to prepare a clear business plan and cash flow forecast before applying.

What can I use a start up loan for?

There are plenty of ways a start up loan or start up finance might be used, including:

Finding business premises

A start up loan can help you find the right space for your business to flourish, be that leasing or purchasing new premises.

Marketing campaigns

While word-of-mouth may work initially for your business, at some point it is likely you will want to spend money on marketing. And a start up loan can help you do exactly that.

Outsourcing expertise

You might not have the skills to do everything your business requires. Start up loans can help you pay for the expertise of others, such as a web designer to create your first website.

Essential equipment and machinery

Depending on your business, you might need access to vital equipment or machinery. A start up business loan can help you rent or buy the tools you need to succeed.

Stock and materials

Some businesses will need a supply of stock and materials to get off the ground – start up loans can provide the funding to get the items you require.

Recruitment

Hiring people isn’t cheap. And as a small operation, you may need to pay to recruit the right people. A start up loan can help cover these costs.

» MORE: What is the cost of hiring someone in the UK?

Easing cashflow problems

In the early days of your business, you may not have a consistent stream of income. A start up loan can be used to ease some of those cash flow problems in the short term.

Buying an existing, viable business

You may feel that the best way to grow your start up is by purchasing an existing, viable business. This is something a start up business loan can finance.

What are the pros and cons of business start up loans?

Below, take a look at the advantages and disadvantages of start up loans and other forms of business finance.

Advantages of start up loans

• Start up loans can be used for a wide range of purposes, from managing cash flow issues to purchasing equipment.
• A traditional start up loan can provide funding without giving away equity to an investor.
• Repaying your start up loan on time can help you build a good business credit score.
• Some lenders will judge your application on your business plan and forecasts more so than your historical financial performance.

Disadvantages of start up loans

• You are committing to making regular repayments which could restrict your business’s cash flow.
• Certain types of borrowing, such as a secured loan, will require an asset as collateral, which you could lose if you fail to meet your repayments.
• A personal guarantee can leave you as an individual liable for your business loan if the business defaults.
• Failure to meet your repayments may have a negative effect on your business or personal credit score.

What are government start up loans?

A government-backed Start Up Loan is structured as an unsecured personal loan. You won’t need to offer collateral or a personal guarantee as security for the loan. The loan is taken out in your name rather than your business’s name. You can potentially borrow between £500 and £25,000.

As well as the funding, you’ll currently be offered free business support and guidance, and a year of free business mentoring. There is no application fee and no early repayment fee, and the annual interest rate is fixed.

The government Start Up Loan scheme was created because it can be harder for new businesses to access finance. Other options for startup funding that aren’t government backed may require a security, such as a business asset or a personal guarantee, and require your business to have a minimum turnover.

Start up loans for veterans and ex-forces

If you are part of the armed forces and emergency services communities, you can get assistance with applying for a government Start Up Loan through X-Forces Enterprise (XFE).

Start up loans for unemployed people

While it might not be easy, it isn’t impossible to get a start up business loan, including the government-backed loan, while unemployed. There may even be dedicated loans, and grants, for those looking to start a business while unemployed.

Start up loans for young Brits

Thanks to the minimum age requirement of the Start Up Loans scheme being just 18 years old, younger Brits are eligible to apply for funding.

Start up loans and debt relief orders (DROs)

If you are subject to a Debt Relief Order (DRO), you will not be able to get a government-backed start up loan. You will also have restrictions placed on you setting up and promoting a business, and acting as director.

As for other forms of business finance, you will be unable to borrow more than £500 without telling your lender that you have a DRO, which may make it more difficult to secure funding.

Start up loans and debt management plans

Until you have repaid your debts in full, you will not be able to get a government-backed start up loan while on a Debt Management Plan. The same is true for most other forms of business finance.

Can I get a start up business grant?

There are a host of start up business grants, both backed by the government and otherwise, available for new businesses in the UK.

These are delivered on a local, regional and national level, including specific business grants in Scotland, Wales and Northern Ireland. There may also be dedicated grants for different groups, such as women.

» MORE: Small business grants in the UK

Types of start up business finance

There are other forms of financing available to new businesses that don’t take the form of government start up loans. These alternative options for borrowing can be more expensive and have additional risks attached such as assets used as security or personal guarantees. It is therefore extremely important that you properly understand the risks attached before using them to fund your start up, and that you are confident in your ability to make repayments.

Unsecured loans

If you didn’t want to use the government-backed Start Up Loan scheme, for example if you were not eligible, then you could consider taking out an unsecured personal loan to support your business. You won’t need to provide collateral, and approval can be quicker than with a business loan.

Your options will be more limited, however, as many providers do not allow you to take out a personal loan for business purposes. And since this would be taken out in your name, rather than your business’s, you would be personally liable for the loan, regardless of the number of partners in your business.

An unsecured business loan, meanwhile, typically can help your start up access between £1,000 and £500,000 in funds. Depending on the lender, and the size of your business, you may even be able to borrow millions of pounds. However, these loans may be more difficult to access as a new business.

» MORE: Can I use a personal loan for business purposes?

Secured loans

A secured business loan would require you to put up collateral. This would be an asset owned by your business, for example a property or piece of expensive machinery. If you are unable to make your payments, and end up defaulting on the loan, your asset could be repossessed.

As a start up, you may not have any assets to use as collateral. It is still potentially possible to get a secured business loan, however, by providing a personal guarantee.

All of this means it is incredibly important to consider whether you can realistically afford to repay what you have borrowed before taking out a secured business loan.

Asset finance

Asset financing can come in different forms. These can include:

• Hire purchase – where you spread the cost of buying an asset, usually equipment, over a period of time. At the end of the payment schedule if you keep up your payments, you will own the asset outright. Equipment leasing – where the lender buys the equipment for you and rents it out to you for a set period of time. At the end of that period, you can either extend the lease, return the asset, or purchase it outright.
• Finance leasing – this is like equipment leasing, except that you do not have the option to buy the asset at the end. Either you would extend the rental period, return the equipment to the lender, or sell it to a third party on behalf of the lender.
• Asset refinance – where you will transfer ownership of an asset you already own to the lender in exchange for funds and lease it back from them until the debt is cleared.

Invoice finance

With invoice finance, you borrow money against your outstanding invoices to bridge the gap between payments. If you opt for invoice factoring, your lender will chase your clients and customers for payments. Invoice discounting, on the other hand, leaves the credit control up to your business.

» MORE: What is invoice financing?

Merchant cash advance

If your start up business receives payments from your customers via debit or credit card, and meets the eligibility requirements when it comes to minimum card sales and trading history, you could look into a merchant cash advance.

You would borrow funds from a lender, and then pay the advance back as a percentage of the value of your incoming card transactions, instead of a fixed monthly repayment.

Business bridging loans

If your start up needs short-term funding, you could look into a bridging loan. It is typically secured against property, which means if you default your asset is in danger of repossession.

For example, you may need to bridge the gap between future funds from a round of equity financing, and your current cash flow requirements. A bridging loan can help in this situation.

Peer-to-peer lending

If you opt for peer-to-peer lending in order to unlock funds for your start up, you will be matched with an individual, group or business that is prepared to lend you money. You will then pay interest on this loan.

Business credit card

In the early days of your new business, you might consider looking into using a credit card, or even a business credit card, to fund portions of your start up. It is important to remember that, just as proper use of a credit card can help your credit score, misuse can have a negative impact on your credit rating. And interest rates can be high outside your 0% interest periods, so you will need to keep on top of your repayments.

Angel investors

It may be possible to attract an angel investor to your start up. Angel investors are typically wealthy individuals, or groups, looking to invest in new businesses with high growth potential. In exchange for funds, the angel investor will receive a stake in your business. They may also provide mentoring, support and expert advice.

» MORE: What is an angel investor?

Crowdfunding

Akin to peer-to-peer lending, crowdfunding – whether it is debt-based, equity-based or rewards-based – can help you raise funds by contacting groups of lenders, investors or potential clients directly.

» MORE: Crowdfunding for businesses

Friends and family

You may also consider borrowing money from a family member or close friend. However, you should make sure you consider the risks posed to your relationship if you are unable to make the repayments, and make sure the loan amount and a repayment schedule are set down in writing and signed by both of you

» MORE: Getting a loan from friends and family

Businesses eligible for a start up loan

Sole traders, SMEs and large businesses could all qualify for a start up loan, as long as they meet the eligibility criteria of the product and lender in question.

At the most basic level, to be considered for a start up business loan, you will need to be:

• over the age of 18
• a UK resident
• starting a new business in England, Scotland, Wales or Northern Ireland
• looking into setting up as a sole trader, limited company (LTD) or limited liability partnership (LLP) in the UK, if you have not done so already

Each lender, and type of start up loan or business finance, will then have its own criteria. For example, there may be a minimum turnover requirement, or limits on the assets that can be used as collateral.

Can I get a start up loan with bad credit?

It may be possible to get a business start up loan if you have a poor credit history. However, you may find it more difficult and, if you are successful, you may be offered a higher interest rate than if you had a stronger credit score. You could also be asked to sign a personal guarantee.

Do I need a personal guarantee?

Whether you need a personal guarantee to access start up business funding will depend on the type of business loan or business finance. A personal guarantee means you’re agreeing to act as guarantor for your company’s debts, and will pay what’s owed if the business can’t make repayments.

Government-backed Start Up Loans don’t require a personal guarantee or an asset as security for the loan.

Do I need a business plan for a start up loan?

When applying for a start up loan, you will likely need to supply a business plan, as well as a cash flow forecast.

It should contain details on what unique value you will bring to the market, your business’s key activities and resources, the customer segments you will be targeting, and your revenue streams. You may also want to explain what you will use the start up loan for.

» MORE: How to write a business plan

What interest rates are available with start up loans?

The interest rate and fees payable will vary depending upon the type of loan that your business opts for. If you take out a government-backed Start Up Loan, you’ll pay a fixed interest rate on the amount borrowed. There are currently no other fees chargeable, and no early repayment or application fees.

It’s less straightforward when it comes to financing options. That’s because the interest and fees you’ll pay will depend on factors such as the provider and the type of loan, how much you borrow and for how long, and your business sector and credit score.

Are any businesses excluded from applying?

Start up loans can support most types of businesses. Even so, some sectors, such as gambling, are usually excluded, along with some loan uses such as debt repayment.

You will also then need to meet the eligibility requirements for whatever form of start up loan or business finance you have opted for. At the most basic level, this is likely to include being over 18 years old, being a UK resident, and looking into setting up as a sole trader, limited company (LTD) or limited liability partnership (LLP).

How to apply for a start up loan

To apply for a business loan, you’ll usually need to supply a business plan and financial projections, along with some personal details. This will help providers look at your affordability levels and the strength of your business plan.

The business plan must include how you’re planning to spend the money you borrow, and how you’ll make the repayments.

You may also need to provide business bank statements and your balance sheet to show assets and liabilities, so having that documentation ready will help prevent delays.

Then you will need to follow the specific application process of the loan or finance you are looking to secure, including going through the relevant eligibility checks.

» MORE: Business loan application tips

How long will it take to apply?

The length of the application process for start up loans and other business finance can vary greatly, depending on the type of finance, the lender, and your level of preparedness.

By getting everything you need together ahead of time, such as bank statements and a final draft of your business plan, you may be able to ensure that your application is as smooth and efficient as possible. On the other hand, if you require more support with your application, this may slow down the process.

How much money can I apply for?

The amount of money you can apply for depends on what form of finance you are interested in. In general, however, borrowing starts from £500, and can run into the hundreds of thousands of pounds.

Start Up Loans FAQs