Start up business loans

July 2021

Bring your business dreams to life with a start up loan.

The Start Up Loans programme is a UK-wide, government-backed scheme that offers a personal loan, up to £25,000 to those that have a viable business idea but no access to finance. All successful loan recipients are offered free mentoring and access to exclusive business offers.

To find out what other early stage funding and savings opportunities are available to your business simply register here.

About British Business Bank

Start Up Loans, a subsidiary of the British Business Bank, is a government-backed scheme designed to support UK businesses who struggle to access other forms of finance. Whether you’re taking the first steps or have been trading for a while and looking to grow, a Start Up Loan can help you achieve your business goals.

Amount

Amount

£500-£25,000 
per co-founder

Term

Term

1-5 years

Cost

Cost

6%

Speed

Speed

This can vary but generally a month from start to finish

Purpose

Purpose

Kickstart a new business

Suitable for

Suitable for

New businesses under 2 years old

What is a start up loan?

A start up loan is a business loan designed to help new UK businesses launch and grow. Like any other business loan, it’s a lump sum of capital that you pay back with regular repayments at a fixed interest rate.

Lenders will usually want to see details of:

  • Your business plan
  • Your turnover
  • Your trading history (if you have any)
  • Your founders
  • Your projected earnings.

You might find, however, that your business doesn’t currently meet the lending criteria for a government-backed Start Up Loan If this is the case, create a Swoop account and speak to one of our advisors to discuss your options.

Swoop are part of a network of official Start Up Loans referral partners across the UK who signpost new businesses to the scheme. We do not provide any business support as part of this partnership, and will not charge you for anything related to Start Up Loans. We may receive a fee from Start Up Loans Company if you subsequently obtain a loan having clicked on our link.

Many types of business can obtain a Start-Up Loan, from those still in the concept stage to those that have been trading for up to 24 months. However, some areas of industry are excluded. Companies, partnerships, or sole traders that engage in Illegal activities such as drugs, weapons, and chemical manufacture; FCA-regulated activities such as banking and money transfer services; gambling and betting; pornography; charities; private investigators without the correct license; property investment; and agents for third parties where your company does not receive most of the revenue it creates, are some of the businesses that are not eligible for a Start Up Loan.

To obtain a government-backed Start Up Loan, eligible applicants must meet the following criteria:

  • You must be at least 18 years old
  • You must live in the UK
  • You must have the right to work in the UK
  • Your business must be based in the UK
  • You must prove that you were unable to acquire a loan from alternative sources
  • You must prove that you can afford the loan repayments
  • Your business must have been trading for no more than 24 months

Start Up Loans can be used for most legitimate business purposes if they support the early growth of the company, form part of the business plan and are shown in the financial forecasts. Financial support from £500 up to £25,000 is available, with a maximum of £100,000 possible for a single entity if four business partners or directors each personally apply. (Maximum per applicant is £25,000).

Your business ownership is unaffected if you take out a government Start Up Loan.

How do start up loans work?

Start up loans are designed to bring a seed or early-stage business to life. They inject early money to pay for concepts, testing, designs, prototypes, machinery, plans, legal needs, premises, marketing, staff costs and more. Often, a start up loan is the only cash a company has when it first begins to operate, and these loans are often provided when the business is little more than an idea.

The UK Government-backed Start Up Loan scheme provides funds without requiring security, a personal guarantee, or a stake in the business. The loans are also provided at a low rate of interest and with up to five years to repay.

Funds from private investors, (‘angels’) are not loans, they are investments, even if they provide the same outcome as a loan. Be aware that some investors may ask for a large share of your business as well as regular payments in turn for their cash

Choosing the right source of start up loan is important for any new business. The sum required, the length of time the money must last, the company’s ability to repay, and the retention of ownership must all be considered. Most importantly, time and effort should be put into the business plan to ensure the company has sufficient capital to reach the stage when revenues arrive.

What types of start up loans are there?

The primary source for start up loans is the UK Government-backed Start Up Loan scheme. These loans are unsecured, enjoy a lower rate of interest than typical business loans offered by commercial lenders, and are provided by the British Business Bank. Swoop are part of the UK-wide network of referral partners for government Start Up Loans. Apply today to discover if your business is eligible for this type of loan.

Other options for start up funds include:

  • Traditional business loans
  • Asset-backed loans
  • Merchant cash advances
  • Funding from Angel investors
  • Grants
  • Business credit cards

Register with Swoop to find the best option for your immediate business needs.

What are UK Government Start Up Loans?

Government-backed Start Up Loans are a different kind of funding. Commercial lenders usually ask for security when providing a business loan. This means you must provide collateral to cover the loan if you default. You will also need to provide a personal guarantee. Government Start Up Loans are unsecured personal loans. You do not need to supply collateral or a personal guarantee.

Start Up Loans are available from £500 up to £25,000, with a maximum of £100,000 possible for a single company if four business partners or directors each personally apply (maximum per applicant is £25,000). Repayment is made in affordable instalments and subject to a fixed interest rate of 6% per year. You can repay the loan over a period of 1 to 5 years. There is no application fee and no early repayment fee.

The UK Government also provides free support and guidance to help write your business plan, and successful loan applicants get up to 12 months of free mentoring. Start-up loans from sources other than the government-backed scheme may be subject to different terms and conditions. Please contact us to discuss these alternatives.

What are the advantages of a start up loan?

Start up loans enjoy significant advantages over other types of borrowing:

  • They enable you to start your business
  • They usually allow you to retain full or majority ownership
  • Government Start Up Loans require no security or personal guarantee
  • They often have lower interest rates and may enjoy deferred payments
  • Lenders provide the loan based on the business plan and financial projections. They do not expect to see historical business accounts
  • Start up loan providers will consider riskier businesses or ideas than most traditional lenders
  • Start up loans let you build business credit

What are the disadvantages?

  • The application criteria for the government scheme can be restrictive and slow
  • Non-government backed loans can be expensive and may require collateral
  • Start up loans can put your personal credit rating at risk

What are the interest rates and fees?

Government-backed Start-Up Loans are subject to a 6% fixed rate of interest. These loans can be paid back over 1-5 years and have no application or repayment fees.

Loans from commercial lenders are usually more costly than the government scheme. Interest rates and fees vary and are based on the level of risk, credit scores, and the availability of collateral. 

What can the loan be used for?

Government-backed Start Up Loans can be used to start a new business or grow an existing business that has been trading for less than 24 months. The loan can be spent on a wide range of expenses related to your business, like employees, equipment, stock, premises, and marketing expenses. Where you intend to spend the loan and what it will pay for must be included in your business plan and cash flow forecast and the plan must explain how the loan will help you start and/or grow your business.

Some activities cannot be funded with a Start Up Loan. These include debt repayment, training qualification and education programmes or investment opportunities that do not form part of an ongoing sustainable business.

Can I get a start up loan with bad credit?

Possibly. During the application process, the lender will carry out a personal credit check to ensure you can afford your loan. Although bad credit doesn’t necessarily disqualify you from being eligible for a Start Up Loan (all applications are assessed individually), it will be considered during the assessment process. If the lender is not satisfied that you will be able to afford the loan, your application may be rejected.

Do start up loans require a personal guarantee?

Government-backed Start Up Loans do not require collateral or a personal guarantee. Start up business loans from commercial lenders may ask for your personal guarantee or demand collateral to cover the loan in the event of your default.

Can I get a start up business loan without a credit check?

No. The government backed Start-Up Loans scheme requires a review of the applicant’s personal credit history. You must expect all commercial lenders to do the same.

If you have poor credit, that does not necessarily disqualify you from being eligible for a Start Up Loan (all applications are assessed individually). Additionally, Swoop works with lenders who specialise in loans for applicants with poor credit. Even if you’ve been turned down elsewhere, it may still be possible to obtain funds for your new business. Register with us to learn more about these alternatives.

Start up loans for veterans/ex-forces

The UK Government has recently changed policies to make government-backed Start Up Loans available for retired or ex-members of the armed forces. These loans follow the pattern of the standard Start Up Loan scheme:

  • £500 to £25,000 available per applicant. Maximum four applicants per business entity
  • 6% fixed rate interest
  • 1-5 years to repay the loan
  • No application fees or repayment fees
  • Business ownership retained by the borrower.

Eligibility criteria remains the same for veterans and ex-forces applicants as it does for all other Start Up Loan applicants.

Start up loans for the unemployed or those with no income

Being unemployed or having no income does not mean you cannot apply for a government-backed Start Up Loan. However, the full application criteria will still apply. Without an income it may be more challenging to produce the required business plan and financial forecasts if you are unable to create these yourself and need professional support.

If you are currently receiving state benefits you are still eligible to apply for a Start Up Loan. For details of which state benefits you are entitled to while applying for such a loan, please contact Job Centre Plus.

Some commercial lenders offer loans for borrowers without an income. It is possible that money obtained with these loans can be used to fund your start up. However, these types of loan are always more expensive than the government scheme, and the lender will usually require collateral, (such as your home),  to cover the value of the loan in the event of your default.

Start up loans for young brits

The UK Government’s Start Up Loan scheme is available to anyone with an idea or a young company to expand if they are over the age of 18 and meet other qualifying criteria. Young Brits are welcome to apply. There is no need to demonstrate a successful business history or provide years of audited accounts.

Additionally, young entrepreneurs may qualify for a range of grants that specifically provide funds for new business ventures led by young people. Unlike a loan, grant money does not need to be repaid. It is a gift for your business. Please contact us to learn more about youth start up loans, grants, and other funding alternatives.

Is my business eligible?

If you can meet the following criteria, you are eligible for a government-backed Start Up Loan:

  • You must be at least 18 years old
  • You must live in the UK
  • You must have the right to work in the UK
  • Your business must be based in the UK
  • You must prove that you were unable to acquire a loan from alternative sources
  • You must prove that you can afford the loan repayments
  • Your business must have been trading for no more than 24 months

If you cannot fulfil all the requirements above, you may be able to raise necessary start up money via an alternative form of funding – for example, a grant or business credit card.

How do I apply for a start up loan in the UK?

To apply directly to the government’s Start Up Loan click here. To discuss alternative finance options to kickstart your new business, register with us and speak with an expert who can guide you through the process of sourcing funds.

Frequently Asked Questions

Swoop has partnered with UK and European business grant providers, as well as Local Enterprise Partnerships (LEPs), to offer access to a wide range of grants and schemes. Many of these are suitable for start up businesses, and unlike a start up loan, a grant does not need to be repaid. It is a gift to your business.

As with start up loans, the quality of your grant application is important. A well-prepared business plan and accurate financial forecasts are key to success. Other qualifying criteria also apply.

The Swoop network offers thousands of business grants available in the UK at both national and regional levels. Grants are often sector-specific or tied to a particular product or outcome. We are constantly updating our database so that we can provide you with comprehensive up-to-date access to the latest grant opportunities. Register to discuss the best business grant for your start up operation.

There are differences between start up loans and grants:

  • Grants do not need to be repaid. Start up loans do
  • Grants can be tied to specific business sectors or outcomes. Loans are more flexible
  • The application process for a loan can be faster than a grant
  • Grant applications can be more complicated than start up loan applications
  • Qualifying criteria for grants are often more restrictive than start up loans
  • Some grants may ask you to provide ‘matching funds’ from your own money
  • Many grants come from a fixed pool of cash. When the pool is fully allocated, the grant is no longer available.

Prior to your application, the funder will carry out a full credit check in order to ensure you can afford your loan. Although poor credit doesn’t necessarily disqualify you from being eligible for a Start Up Loan (all applications are assessed individually) it will be considered during the assessment process and, if the assessor is not satisfied that you will be able to afford the loan, your application may be rejected.

Start Up Loans are not available to anyone subject to a Debt Management Plan. However, upon full repayment of any outstanding debts, your application can be considered.

The UK’s visa system is divided into tiers based on the individual’s circumstances (e.g. reason for being in the UK, duration of stay), and eligibility for a Start Up Loan depends on which visa you have. If you are residing in the UK on any of the following visa tiers, you will not be eligible for a Start Up Loan.

  • Tier 1 (high-value migrants, all categories)
  • Tier 2 (skilled workers, all categories)
  • Tier 4 (students)
  • Tier 5 (temporary workers)
  • Domestic Workers on a Private Household
  • Representative of an Overseas Business

Other visa categories may be eligible, however if you require confirmation of your eligibility please visit the government’s visa website. If you hold an ancestry visa or a visa that states “no recourse to public funds”, you should be eligible for a Start Up Loan. It is important to remember that if your visa does make you eligible, your application must allow you to pay the loan back in full within 12 months of your visa’s expiration date.

Depending on the visa tier, you may be eligible for a government Start Up Loan. Any individual with a tier 4 visa is ineligible as this visa does not allow self-employment, while a tier 1 Graduate Entrepreneur visa will not make you eligible as the duration of the visa is shorter than the minimum length of the loans available.

If you are looking to purchase a business that has been trading for more than 24 months, you could still be entitled to a Start Up Loan provided you have not owned the business for more than 24 months.

When filing your application, you will need to provide a copy of the business’ accounts, and if the business is operating at a loss (or has previously operated at a loss) your business plan must include details of how you expect to ensure a level of business growth that will lead to the company turning a profit.

As Start Up Loans are only available to businesses that have been trading for less than 24 months, it is important to know exactly when your business became operational. An operational business is considered to be a business that is buying/selling goods or providing services and generating regular revenue. Any business prior to this point – for example research or market testing – that does not generate revenue does not need to be taken into consideration.

If your business exports goods to other countries, you will be eligible for a Start Up Loan provided the business meets the following criteria:

  • A UK registered company, or registered in the UK for tax purposes
  • Operates from the UK
  • More than half of your revenue remains in the UK

You do not need to be registered with HMRC or Companies House prior to applying for a Start Up Loan if you have not yet started trading. It is worth remembering, however, that you should register with both before you begin trading and may be subject to fines if you do not do so.

Up to four partners from the same business can apply for loans, with a maximum of £100,000 available to any individual business. However, if multiple partners from the same business wish to apply for a Start Up Loan, they must all apply through one Delivery Partner – the organisation that assesses applications and provides support for successful applicants.
Partners must apply for loans separately, as the assessment process is carried out on an individual basis that considers each person’s ability to pay back their personal loan, with separate credit checks carried out on each individual rather than the business. You are, however, entitled to put forward the same business proposal and cash flow forecast.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance.

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