How to get a loan to start a business

Thousands of new businesses were launched in the UK in 2023 and the pace of entrepreneurship shows no sign of slowing down. Doing your own thing in business is clearly the way to go. 

Many of these budding businesses used personal savings and funds from friends and family to get off the ground. But what do you do if you don’t have cash to hand and no personal sources to finance your great idea? Startup business loans are designed to help new organisations get up and running. More readily available from online lenders than traditional banks and credit unions, these specialised forms of financing can make all the difference when launching a new company, giving entrepreneurs the critical funding they need to get their business through the early months and years. 

So how do startup loans work and what do you need to get one? Read on to find out all you need to know about getting a loan to start a business.

What are the different types of startup business loans?

There are many types of startup business loan. Interest rates, fees and terms and conditions can vary significantly. This means it is important to review all the options before settling on a deal. Here’s a rundown of the best startup loans to support your new venture 

Term loans

This is the most common startup business loan. You receive a single, lump-sum cash injection and then pay it back in regular instalments over a fixed period of up to 25 years. Borrow up to £5million. Collateral may be required.

Lines of credit

A startup loan that functions like a high-value credit card but comes with lower interest rates and fees. Organisations can withdraw as much as they want when they want from a loan facility up to the limit of their borrowing. The best thing about a line of credit is that you only pay interest on the sum you withdraw, not the whole line. This can significantly reduce your borrowing costs. Collateral may be required.

Equipment loans

Equipment loans use the asset you’re financing as security, similar to a car loan or a residential mortgage, so no added collateral is required.  Buy machinery, furniture, technology, etc. Use the equipment as you pay for it while the lender maintains a lien over the title of the machinery until the loan is repaid. 

Merchant cash advances

Available for businesses that accept customer payments by credit and debit card. You borrow against the value of your card sales. As your card sales increase, your borrowing limit goes up. Pay the loan back with a fixed percentage of your card sales on a daily, weekly or monthly basis. Your sales act as security for the loan, no added collateral is required.

Personal loans

Personal loans work like business term loans, providing a lump sum of cash that you pay back over time. Personal loan lenders are often more relaxed about the use of funds and may demand less supporting documentation. Note that personal loans usually have lower borrowing limits and higher interest rates and fees than business financing. Collateral may be required.

Loans from friends and family

Many small business owners borrow money from family and friends, especially when they’re trying to start a new venture. However, using funds from loved ones can often be a source of contention if the ground rules are not clear from the start. If you have access to this type of financing opportunity, make sure your funders know if they are providing a loan, a gift or an investment from the start. If there are plans to pay the money back, put this down in writing with a clear repayment schedule – including a plan of action if things do not turn out as expected and you cannot pay the funds back on time, or at all.

How to apply for a business loan

Applying for a startup business loan is similar to applying for most other types of business funding. To improve your chances of success ensure you have your ducks in a row before you apply:

  • Check your personal and business credit scores. Even though you’re asking for a business loan, lenders will usually scrutinise both your personal and business credit reports. Ensure they are correct. If there are information errors, get them fixed before applying for your loan.
  • Prepare your business plan and pitch. Lenders will expect a detailed business plan that explains your business idea, why you need the funds and what they will do for your new venture once you have them. Business plans should do more than paint a rosy picture – explain the risks involved, what the downsides could be – and how you intend to overcome them. If you cannot produce a business plan yourself, it may be worth paying an external service to do this for you. 
  • Research and compare lenders. You can approach banks, credit unions and online lenders one by one, or you can use the services of a loan marketplace that will immediately introduce you to a choice of startup loans from different lenders. Some marketplace platforms can also give you advice and help you with the application process. This can be especially useful for borrowers who have never taken out a business loan before.

What do lenders look at when evaluating business loan applications?

Getting a business loan is usually decided by several key metrics: How long your business has been operating, your credit report (business and personal), your business bank account data, annual turnover, financial history and the strength of your business plan. However, if you’re seeking funding for a startup loan your business will be very new or may not be trading yet. This means you won’t have much business history and your paperwork may be minimal. In such case, the lender will typically pay more attention to your personal credit score when evaluating your loan application. It is also usual for lenders to ask for collateral or a personal guarantee when offering startup funding.

What If I'm rejected for a startup business loan?

Getting a business loan is usually decided by several key metrics: How long your business has been operating, your credit report (business and personal), your business bank account data, annual turnover, financial history and the strength of your business plan. However, if you’re seeking funding for a startup loan your business will be very new or may not be trading yet. This means you won’t have much business history and your paperwork may be minimal. In such case, the lender will typically pay more attention to your personal credit score when evaluating your loan application. It is also usual for lenders to ask for collateral or a personal guarantee when offering startup funding.

Things to do if you’ve been rejected for a startup loan

  • Try and find out why you were rejected. Many lenders won’t tell you this, but some will. Knowing why your application was denied can give you the chance to fix the issue before you apply elsewhere.
  • Don’t send out dozens of new applications. Every time you apply for a loan, a hard search is recorded on your credit report. Too many of these in a short period can hurt your credit score, making it harder to get a loan. Choose who you apply to next very carefully. Check for any funding restrictions or limitations on the type of ventures they will finance. If your business falls outside their scope of operations, look elsewhere. 
  • Consider how you can make your application more attractive. This could include offering collateral, such as real estate, bringing in a cosigner, or asking for a different type of loan.

How to get a startup business loan with bad credit

To get a startup business loan with poor credit, you’ll need to prove that you have the ability to repay the debt. Here are some tips to help you get approved:

Boost Your Credit Score

Even with bad credit business loans your credit score is still important. Spending the time to re-build your score before applying for a loan can often make the difference between success and failure. Start the process by following these steps:

  • Check your personal and business credit reports for errors – if there are any, get them fixed by contacting the credit bureaus and reporting the mistakes
  • Register your business 
  • Open business checking and savings accounts to keep your business finances separate from your personal account
  • Get a business credit card and manage it properly
  • Pay your bills on time – personal and business – and only take on debt when you know you can repay it
  • Keep old credit accounts open even if they have zero balance and you never use them. Accounts with a few years’ history can help boost your personal credit score.
  • If you can, avoid moving business or residential location too often. Lenders like to see at least two to three years at your present location, and it also helps your credit score

Review lender requirements

Every lender will have their own financing criteria. Some bad credit lenders may need to see a steady cash flow and solid positive balances in your business bank account, but others may be more lenient about the need for cash on hand and strong revenues. Review the requirements of each lender and make sure you can meet their needs before applying. 

What assets do you have?

If you can provide collateral – real estate, vehicles, machinery, etc. – it will usually be easier to get a bad credit startup loan. Once again, you should review each lender’s requirements with regards to collateral – some will consider most types of asset, while others may only work with assets that are fully paid for and owned by the business. 

Consider a cosigner

A cosigner is a person you trust and who has good credit and assets they are willing to offer as collateral. They agree to make the payments on your business loan if you or your business cannot. Essentially, the cosigner is a fail-safe for the lender. If you don’t pay, they will. This can give added comfort to the lender, and in the right circumstances, may increase your chances of loan approval.

A cosigner can be anyone you know – friends, family, business associates etc. They will need good credit and sufficient assets to cover the value of your business loan. You should choose your cosigner well. They should be someone you trust and who trusts you, because asking them to put their finances, assets and credit on the line is no small thing. Keep in mind that if things do not go according to plan and they end up paying back your loan it could have a detrimental impact on your relationship with them. 

Make sure you can repay the loan

Taking on a business loan that can’t repay won’t help you or your new business. Review your cash flow and revenue projections before applying. Is there room in your budget to make the necessary payment instalments? Also be aware that although many business loans require monthly repayments, some startup loans will demand weekly or even daily instalments. Will your cash flow be able to handle these smaller, but more frequent payments?

What are the alternatives to a startup business loan?

There are many ways to finance a new business venture. If the options above do not work for you, it could be worthwhile to investigate these funding alternatives:

Business credit cards

It may be possible to secure a business credit card to fund your startup – although the interest rates and fees you pay may be very high. The application process for these types of card is usually fast, streamlined and does away with piles of paperwork – in many cases you won’t even need a formal business structure to apply. Business credit cards are also great for re-building your credit if you pay off the balance every month. No added collateral is usually required.

External investors

If you’re seeking outside investment for your new business, there are networks of venture capitalists and angel investors readily available online. Some are solely focused on supporting startups and new businesses. 

Bringing in external investment can give you the cash you need to get your idea off the ground, and it may also deliver a unique and extra set of skills and contacts that can help your organisation grow even faster. However, be aware that investors will usually want a piece of the action in exchange for their money. This means you give up a share of your ownership and it may loosen your overall control of the business. Some investors may also want higher dividends or royalty payments as well as their share of equity. Also note that venture capitalists and angel investors can be very picky about the businesses they choose to back. You could spend many months pursuing one lead after another before you find the right match. 


Business grants are another funding option for startups and young organisations. Unlike business loans, the major advantage of this type of financing is that you don’t need to repay the money. However, the downside is that can be tough to secure a grant. They are often restricted to specific locations, industries or causes, making it more difficult to qualify.


Available via various online platforms, crowdfunding can bring in large sums if your presentation hits the right spot. Although you will need to be creative to raise big money in small donations from hundreds or even thousands of donors, you do not need to repay the cash if you spend it where you said you would. An eye-catching idea and a powerful pitch is essential to succeed with this funding option.

Get started with Swoop

No matter if you’re seeking your first startup loan or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for your funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality startup loans from a choice of lenders. Give your big idea the financial boost it needs. Register with Swoop today.


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, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, 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 and insurance.

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