When starting a business, it is almost safe to say there are things that will not always go your way. And when you find yourself in this situation, 90% of the time it will involve money. You make mistakes, it will cost you, and when things go right, you profit from it. Start up businesses usually have these problems early on in their business’ lifespan and in order to persevere you need money that acts as the lifeblood of your business.

In this blog, we will cover the loans a business can avail should it find itself in a tight spot.

Table of Contents

1. Introduction
2. Key Takeaways
3. Government-Backed Startup Loans
4. Alternative Financing Options
5. To Secure A Start-Up Loan You Need To…
6. FAQs

Key Takeaways

• Government-backed Start Up Loans.
• Alternative financing options
• A strong business plan and a good credit score improve your chances of loan approval.

Government-Backed Startup Loans

The UK government has a Start Up Loans scheme to help small businesses get started. With this, you can borrow between £500 and £25,000 at a fixed 6% interest rate per year. Each co-founder can apply for up to £25,000, and you’ll have 1 to 5 years to pay it back. Plus, you get free mentoring for a whole year, which can be super helpful when you’re figuring out how to run your business. It’s a great way to get the money and support you need to bring your business ideas to life.

To avail you must be:

• Be 18 years or older
• A UK resident
• Have a business idea or an existing business trading for under 36 months
• Pass the necessary credit checks

Alternative Financing Options

If a government-backed loan isn’t the right fit, consider other financing solutions:

1. Secured Loans:
   • Require assets as collateral, lowering interest rates.
2. Unsecured Loans:
   • No collateral needed but may have higher interest rates.
3. SME Loans:
   • Designed for small to medium-sized enterprises, often with quicker approval.
4. Invoice Financing:
   • Access funds from unpaid invoices to improve cash flow.
5. Merchant Cash Advances:
   • Receive funds upfront based on future credit card sales, with repayments taken from daily sales.
6. Crowdfunding:
   • Pitch your business idea online to gain financial support from multiple investors.
7. Business Credit Cards:
   • Convenient short-term funding while building your credit history.
8. Grants:
   • Non-repayable funds often available for specific sectors or regions.
9. Peer-to-Peer Lending:
   • Borrow money from individuals through online platforms, often with flexible terms.
10. Lines of Credit:
    • Flexible funding access, only paying interest on what you use.
11. Asset Finance:
    • Use financing to purchase or hire business assets like vehicles or equipment.

To Secure a Start-Up Loan You Need To…

1. Ensure Your Payment Capability
   • Before availing a start-up loan, the lender will look at your background and if your business has the capability to pay. This allows the lenders to carefully approve only those who can pay for the stipulated amount.
2. Check Your Credit Score
   • Your credit score will enable you to avail yourself of these loans faster. The higher the credit score, the better.
3. Gather Required Documents
   • Include identification, business financials, and personal financial statements that will serve as proof your business is in good standing and is qualified for the loan.
4. Apply Online
   • Submit your application through the relevant platform website or a chosen lender.

To Secure a Start-Up Loan You Need To…

• Explain honestly where the funds will be used.
• Maintain a healthy personal credit score and manage existing debt responsibly.
• Provide accurate financial information and realistic revenue projections.

FAQs

1. What is the maximum amount I can borrow through the UK government’s Start Up Loans

£25,000 per co-founder.

2. Are there any fees for early repayment of a startup loan?
   • No.
3. Can I apply for a startup loan if my business has been trading for over two years?

The Start Up Loans is available for businesses that have existed for not more than 36 months or 3 years.

4. Do I need to provide collateral for a startup loan?
   • Government-backed Start Up Loans are unsecured, meaning no collateral is required.