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Start-up loan

Quick facts

A start-up loan is a business loan designed to help new businesses launch and grow. It is one type of start-up finance. Like any other business loan, it’s a lump sum of capital that you pay back with regular repayments at (usually) a fixed interest rate. There are many different lenders offering start-up loans, each with their own lending criteria, application processes and terms.

Let’s say you’re a start-up business. You’ve got a great idea. You might also have a team in place, a business plan, a budget and a figure for the amount of finance you need in order to meet your short-term needs and grow. You might decide you need funding for, say, three years to cover development costs and start-up losses. Perhaps you’ll need finance even after you’ve reached break-even point, especially if your business is seasonal.

The good news is that there are lots of options for start-up finance, spanning debt finance, grant funding and equity finance from crowdfunding or external investors. 

For short-term finance you might consider an overdraft (paying interest only on the amount you’re overdrawn each day), factoring (selling accounts receivable), a credit card or other types of working capital finance.

If you’re looking for longer-term finance then a start-up loan is one option. There are a large number of lenders (bank and non-bank) that offer loans to start-ups or new businesses. 

Here are some typical characteristics of the kind of start-up loans currently on offer:

  • loans from £500 to £25,000 (some lenders offer up to £1m)
  • loan terms from one to five years (or up to 25 years for a commercial mortgage)
  • fixed or variable rates (depending on product)
  • instant decision for smaller loans (i.e. up to £10,000)
  • funding released within hours (some lenders)
  • interest rates from 6% (this varies according to lender)
  • no arrangement fees (some lenders)
  • no early repayment charges (some lenders)
  • repayment holidays (some lenders)
  • the ability for you to check your loan potential online without affecting your credit rating
  • facility to top up your loan (some lenders)
  • director personal guarantees may be required 
  • free mentoring (some lenders).

Lenders will usually want to see details of:

  • your business plan
  • your turnover 
  • your trading history (some lenders require a minimum of six months or two years)
  • your founders
  • your projected earnings.

You might find, however, that your business doesn’t currently meet the lending criteria for a start-up loan (or for any longer-term business loan for that matter). Or perhaps you just don’t want to take out a traditional loan. You could instead investigate crowdfunding, peer-to-peer lending, business angels, venture capital and other types of alternative finance. Your business may also be eligible for grant funding or for one or more of the government’s schemes to reduce taxes, e.g. R&D tax credits or creative industry tax reliefs.

Don’t waste time – there are plenty of funding and saving solutions to help your business grow

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