Compare start-up business loans

What is a start-up business loan?

A start-up loan is a lump sum borrowed from a lender to help finance a new business. They can be used to help get companies up and running, but you don't have to apply on day one.

You can apply for a start-up loan even if you have an existing business, but your business has to be less than three years old.

How does the government start up business loan scheme work?

In an effort to help people start more businesses, the government runs its own business start up loan scheme.

They're not the same as business grants and so have to be repaid, but there are some advantages.

Government-backed start-up loans let you borrow between £500 and £25,000 and have:

• Fixed interest rates of 6% a year

• No application fee

• No early repayment charges

• Terms of between one and five years

They also offer free support and guidance to help write a business plan and 12 months of business mentoring for successful applicants.

But they're not for everyone. There are exclusions to both what sort of business you can start and what you can spend the money on. You also need to pass a credit and affordability check before you get the money.

Bear in mind that you might well be able to find cheaper rates, borrow more money or find a deal that lets you repay over a longer term elsewhere.

What can start-up loans be spent on?

You can use the funds gained through a start-up loan for most business expenses. They can help with set-up costs, cash flow or pay for your premises. They can also be used to cover recruitment and marketing costs.

In short, you can spend start-up loans on:

• Buying stock

• Buying equipment

• Marketing

• Paying workplace rent

• Staff wages

• Recruitment

• Training

If you're thinking of taking out a business start-up loan, it's a good idea to compare the rates offered by each lender in the table above as this will translate into reduced repayments down the line.

How do start-up business loans work?

Like most other loan types, start-up business loans enable you to borrow money from a business lender for a fixed term. In return, you agree to repay that loan with interest.

The amount available can vary from as little as £500 to £5 million – it depends on the lender and the loan you choose.

Check the terms and conditions for any loan that may be applicable to your business – you may still be eligible for one of the start-up loans listed above if your business was set up within the past two years.

In addition, you’ll might need to go through the usual credit checks and demonstrate that you can afford the repayments, depending on the type of loan and how your business is structured.

How to choose a business start-up loan

Consider the following when choosing the best business start-up loan for you:

The best way to find the lowest APR for the amount you plan to borrow is to compare as many start-up loans as possible.

What do I need for a start-up business loan?

You’ll need two things in place before applying for a start-up business loan - a cash-flow forecast and a business plan.

This demonstrates your business is a serious proposition to lenders and that you’ve given plenty of thought to how you’ll get it up and running.

If you’re unsure how your business plan and cash-flow forecast should look, search for some templates online.

You can read our full guide to writing a business plan here, and we've rounded up some of the best business and cashflow forecast templates on our starting a business hub.

Are grants the same as start-up loans?

No, unlike start-up loans, grants don’t have to be paid back and there's no interest to pay either.

Small business grants are typically available from your local council and could provide funds - for example, £1,000 - to help you get your business idea off the ground.

There's no guarantee that your enterprise will receive a grant, however, in which case you may need to apply for a start-up loan instead.

You can read our full guide to all the different ways to fund your business idea here.

What else to consider when taking out a business loan

As with any loan, the most important thing is making sure you can meet the repayments.

There are a few benefits to start-up loans that you might not have thought about:

• Credit score: If you make all your repayments on time and in full, you'll build a good credit rating for your business. This makes borrowing easier in the future

• Unsecured funding: Start-up loans tend to be unsecured, so you won't usually need to put forward any assets as security. This means your business and home are safe, whatever happens

• Full autonomy: If you get a loan, you remain in charge of all your business decisions. This may not be the case if you use an investor instead of a loan
  

Last updated: June 14, 2023