startup loan, business loan, start up loan, business plan, british business bank, business loans, secured business loans

by Sam Franklin | April 06, 2022 | 13 min read

Startup loans backed by the UK government | Everything you need to know

Get funded

Last updated: April 18, 2022

One of the biggest challenges facing early-stage companies is getting the funding needed for business growth. It may be difficult to find investment when your company has a limited track record to show to potential investors. The type of secured business loans offered by banks may not meet your requirements in one way or another.

One of the best ways to fund an early-stage company in the UK is a government-backed startup loan. These are unsecured personal loans with fixed interest rates and are different from other business loans.

The government-backed programme is delivered by the Start Up Loans Company and is part of the British Business Bank. The loans programme is available to startups through a network of affiliates in the UK. This article will look at how these government-backed loans work and how they compare to other loan options. 

Table of contents

What are startup loans?

Startup business loans are designed to help a new business 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. The funding can be used for many different things, such as developing prototypes, testing products, purchasing machinery, premises, and marketing.

You can speak to your bank about startup business loans and also the British Business Bank plc for a government-backed loan. A startup business loan not from the government-backed scheme will have repayment conditions that match your specific business circumstances and may require collateral as security. A government-backed loan has a set interest rate of 6%, less than many other loan options, and does not have any administrative or repayment fees.

What are the benefits of startup loans?

The major takeaway from using a startup loan as a new business is that it is not an investment and will not mean you are sacrificing any amount of control of your business in exchange for funding. Retaining control of your own business will undoubtedly be very important to you as a business owner.

Some of the advantages of startup loans are:

  • They help get your business started

  • They usually allow you to retain ownership

  • Interest rates are often lower, and you can enjoy deferred payments

  • Loans are based on your business plan and financial forecasts, not just trading performance

  • Riskier businesses or ideas are easier to fund than with most traditional lenders

  • You can build business credit and improve your confidence with lenders

The Government-backed Start Up Loans Company

The Start Up Loans Company (part of the British Business Bank plc) have supported over 90,000 business ideas with more than £800 million worth of loans. Government-backed loans are part of a UK-wide programme designed to help businesses access funding that might otherwise be difficult to get. The programme offers loans from £500 to £25,000.

Compared to unsecured business loans, the advantage of a government-backed loan is that they do not require collateral or a personal guarantee, and the interest rate is reasonably low.

The programme also includes free support and guidance to help you prepare the information and documentation you need for the application and free mentoring for successful loan recipients.

Who are Start Up Loans?

Start Up Loans is a wholly-owned subsidiary of the British Business Bank plc. The Start Up Loans scheme is backed by the Government and designed to offer funding and other support to new businesses that may find it hard to access other forms of traditional finance, such as a bank business loan.

Start Up Loans have a nationwide network of delivery partners supporting applicants and assessing the application and a Financial Conduct Authority (FCA) regulated finance partner to manage the loans. To ensure consistency in the way the loan process is being made across the network, they closely monitor the performance of delivery partners and finance partners.

Start Up Loans’ mission

According to their site, the mission of Start Up Loans is to make owning a business a viable career for people who struggle to raise finance. They provide affordable loans and mentoring to help these people start up and succeed. As part of the British Business Bank, they aim to drive sustainable growth and prosperity across the UK and enable the transition to a net-zero economy by supporting access to finance for smaller businesses.

What does a Start Up Loan look like?

  • Government-backed, unsecured personal loan

  • Borrow up to £25,000

  • A fixed interest rate of 6% per annum 

  • Repay over a term of one to five years

  • No fees for arranging the loan or paying it back early

  • 12 months of free mentoring by a business adviser

Who provides the loans?

The Start Up Loans Company administers the scheme but does not directly provide loans to applicants. If your application is successful, your loan agreement and loan funds will be provided to you by either your delivery partner or one of our finance partners.

The partner that distributes your loan will be your main point of contact for discussing the terms of your loan and any other matters related to your monthly repayments.

Start Up Loans delivery partners

These partners are responsible for assessing final applications for the loans and assisting applicants in preparing the necessary documentation and information for assessment. Working with these partners should put you in the best possible position to make a successful application for a loan. 

When you’re successfully granted a loan, you can expect ongoing mentoring from the delivery partners to offer advice on dealing with the tricky hurdles many startups encounter on their journey. The support they offer is through experienced business advisers and extends to how to set up and run your business in general.

While they endeavour to match you with the best delivery partner for your business requirements, you can’t change a delivery partner once you have applied. 

You can learn more about the Start Up Loans delivery partner service here.

The Start Up Loans finance partner

The Start Up Loans Company works with GC Business Finance (GCBF). The FCA regulates GCBF. They are responsible for managing loan agreements and issuing funds to successful applicants. They also act as the main contact for any matters relating to loan administration and repayments. 

Delivery partners aren’t involved in managing the loan after it has been granted.

What type of finance is provided?

Finance is provided by way of a personal loan repayable monthly for the duration of the loan term. A personal loan is offered rather than a business loan to encourage responsibility in borrowing and accountability.

The loan is unsecured, and this means you don’t have to provide a guarantor or an asset as collateral against borrowing like with many business loans. Lenders of an unsecured business loan will often have higher interest rates than one from Start Up Loans because the risk is greater with new businesses where this is an absence of security.

You are still contractually obligated to repay your loan, and if you don't meet your monthly loan repayments schedule, you may be subject to legal action and harm your credit rating. If you’re struggling to make repayments, you should consult with your finance partner to discuss your options.

How much can you borrow with a Start Up Loan?

The government-backed loans are available from £500 to £25,000 for each applicant. A maximum loan of £100,000 is possible for a single company if four business partners or directors each personally apply (the maximum per applicant is £25,000). 

Every individual can only apply for a Start Up Loan for one business, so if you own multiple business ventures, you will only be able to access finance for one of them. However, if you require additional funding to grow after successfully securing a Start Up Loan, you may be eligible to apply for a second loan. You would need to undergo a new application process and have made at least six months of full loan repayments before applying. In addition, your total outstanding loan balance cannot exceed £25,000 at any one time. 

Start Up Loans repayments calculator

You can use the Start Up Loans calculator to work out your monthly repayments.

Your repayment amount is based on the amount you choose to borrow and the loan term. The interest rate is fixed at 6% per annum, and you can choose a loan repayment term between one to five years to suit your business circumstances. There are no application fees and no early repayment fees.

How does the Start Up Loans scheme work?

You will need to submit a full business plan and cash flow forecast to apply for a Start Up Loan. This is done by working with a locally based delivery partner who will help you make the best application possible and provide 12 months of free mentoring if you’re successful with your loan application.

Steps for applying for a Start Up Loan

  1. Check eligibility and register – complete the initial eligibility check.

  2. Complete an application form – provide information on your situation, how much you want to borrow, and for what purposes. Undergo a credit check and submit the business plan and cash flow forecasts. 

  3. Finalise the business documents – work with your business adviser to review your business planning and key supporting documents. If your application is successful, you will be invited to take up 12-months of free mentoring and support.

The benefits of a government-backed loan

There are several advantages to choosing a government-backed loan to fund your business. Particularly the fact that the loans are ‘unsecured’ and require no security or personal guarantee. Also, the interest rate and general repayment conditions are more generous than other types of business loan that you may consider. 

The disadvantages of government-backed loans?

As these are personal loans as opposed to business loans, your personal credit rating can be at risk if you’re unable to make the repayments. The scheme can also be less flexible and slower than other forms of funding that you may be looking into.

What are the interest rates and fees?

The government-backed loans for startups have a fixed interest rate of 6%. They can be repaid over one to five years and do not have fees for the application or repayments.

If you look at the other types of traditional loans available to startups, you can expect them to be more costly in most cases and have fees that are based on specific circumstances that could increase the overall costs to your business.

What can government-backed loans be used for?

You can use a Start Up Loan to help start a new business or grow an existing business that has been trading for less than 36 months. The loans can be used for most legitimate business purposes if they support the early growth of your company.

The funding can be used for things such as recruitment, purchasing equipment, raw materials or marketing. 

As part of your application, you’re required to submit your business plan and cash flow forecast, and these will detail where you will allocate spending. You will also show how the loan is necessary to help your business get started or achieve growth.

You can find links to templates for business plans and cash flow forecasts on the British Business Bank website.

What activities are excluded from the Start Up Loans programme?

Certain activities cannot be funded using a government-backed loan, including debt repayment, training and education programmes, or investment opportunities that do not form part of an ongoing sustainable business. 

What other support services are available from Start Up Loans?

Along with the free mentoring once you have secured your loan, Start Up Loans offers a range of free courses aimed at helping people starting a business for the first time.

Some of the topics covered are:

  • Entrepreneurship

  • Career and leadership

  • Finance and accounting

  • Sustainability

  • Project management

Start Up Loans eligibility criteria

Many businesses are eligible for a Start Up Loan. Your company does not have to be brand new, but you must have been trading for no more than 36 months. Certain activities will make your business ineligible for a loan, including illegal activities. You can review the full eligibility criteria here.

To obtain a government-backed startup loan, eligible applicants must meet the following criteria:

  • You must be at least 18 years old

  • You must be a current UK resident

  • 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 other sources

  • You must prove that you can afford the loan repayments

  • Your business must have been trading for no more than 36 months

  • Your type of business and reason for wanting the loan is eligible under the terms of the scheme

  • You pass the credit checks, and you can afford to repay the loan

What business types are excluded from obtaining a government-backed startup loan?

  • Weapons

  • Chemical manufacture

  • Pornography

  • Drugs

  • Illegal activities

  • Banking and money transfer services and other FCA regulated activities

  • Private investigators that do not hold the appropriate licence

  • Gambling and betting activities

  • Property investment

  • Agents for third parties, where a third party earns the majority of the revenue, or you would only be earning a commission (not to be confused with franchise businesses which are eligible to apply)

  • Charities

What factors determine if a Start Up Loan application is successful?

The Start Up Loans delivery partners look at three main things in assessing your application:

  1. Your creditworthiness

  2. Whether or not you can afford to take on the loan

  3. Whether your business is viable

The assessment focuses on the viability of your business based on the business plan and cash flow forecast that you submit. The Personal Survival Budget is used to determine the loan’s affordability.

The Start Up Loans Company is committed to responsible lending, so assessing your creditworthiness is important. However, bad credit doesn’t necessarily disqualify you from being eligible for a startup loan. 

Next steps

Choosing the right funding source for a startup is critical in setting the foundations for success. The sum required, the repayment terms, and affordability are all important considerations for loans. You might find that your business doesn’t currently meet the lending criteria for a UK government-backed Start Up Loan, but there are many alternative sources of funding available that might be a better fit.

We know about the difficulties of funding an early-stage business. If you want to discuss alternatives to business loans that are non-dilutive and founder-friendly, you can speak to one of our friendly advisers today.

Written by

Sam Franklin
Sam Franklin

Sam founded his first startup back in 2010 and has since been building startups in the Content Marketing, SEO, eCommerce and SaaS verticals. Sam is a generalist with deep knowledge of lead generation and scaling acquisition and sales.


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