Looking for a business start-up loan to accelerate the growth of your new company, to hire extra staff, or to invest in new machinery and equipment?
Despite being a traditionally underserved market for decades, many of the bigger banks have recently launched their own business start-up loan packages in response to the increasing numbers of business start-up loans offered by newer and nimble competitors.
What are the advantages to taking out a business start-up loan?
Even if your company is making money and, month by month, the amount of cash in the bank is increasing, it may not be increasing fast enough to provide the funds you need to invest in expansion.
With a business start-up loan, you can borrow that money as long as you can prove to a lender that you’ll enough cash left in your bank account at the end of the month to meet the repayments.
The interest on your loan can be deducted from the profits you declare meaning that your corporation tax will be smaller.
And with some lenders, you can link the amount you repay to your level of turnover meaning that you retain the operating capital you need in your business to run during quieter trading periods.
In this article, we consider:
- what a start-up loan actually is
- the eligibility criteria for a start-up loan
- standard features of a business loan
- how you apply for a start-up loan
- 10 financial institutions to approach when you’re seeking a new business loan
- the most frequently asked questions about start-up loans, and
- how we can help you secure the funding you’re after
If you’d like help in securing a business start-up loan, please fill in the form above.
We’re not tied to any lender meaning that the deals we find for you will be completely free from commercial bias. Better still, our advice is free of charge and you’re under no obligation to accept any of the proposals we put your way.
What is a start-up loan?
A business start-up loan is a type of financial product designed to support new businesses which have been trading for less than 24 months.
Business start-up loans may be used for a number of different reasons including but not limited to:
- increased funding for marketing with the goal of achieving higher revenues,
- investment in new machinery or equipment to increase the quality and quantity of the goods you manufacture and sell,
- expansion – growing a business costs a lot of money especially if you’re moving to bigger offices, and
- building an e-commerce platform for your site so you can sell more online.
Am I eligible to apply for a Start Up Loan?
If your business has been trading for 6 to 24 months, it is registered in the UK, and you are over the age of 18, then you’ve met most lenders’ basic requirements.
However, lenders will now need to check both your credit record and your company’s credit records.
You’ll also likely be asked to provide additional documentation the newer your business is.
A reliable rule of thumb for business owners seeking a start-up loan is that the younger your company, the harder it will be to find a lender happy to approve your request.
Standard features of start-up business loans
The business start-up loans offered from lender to lender vary although they all share two common factors – the term (how long you take to pay your loan back in full) and interest (the fee for borrowing the money).
The interest rate you pay varies on the length of time you’ve been trading, your current level of turnover and profitability, and how much cash you have at the end of each month to make repayments.
Depending on the lender, you can borrow anywhere from £500 to £500,000 over a repayment period of anywhere from 1 to 5 years.
If you’ve had difficulty finding a business start-up loan in the past from traditional lenders, working with a newer lender will likely increase your chances of being approved albeit at a higher interest rate.
The risks and disadvantages of start-up business loans
Business start-up loans may either be unsecured or secured.
Unsecured loans are less risky to business owners because you don’t need to pledge your home or any other assets to secure funding.
However, unsecured loans are generally charged at higher rates than unsecured loans.
How can I apply for a start-up business loan?
You can either apply direct to a lender or by using a broker.
Both lenders and brokers generally charge a fee for their service which they deduct from your loan when they transfer the money to your bank account.
For example, if you borrow £25,000 and there is a 3% broker fee, you would receive £24,250 from your lender when the funds are paid to your company.
The 4 other main types of business start-up loan
In addition to standard secured and unsecured business start-up loans, there are four other types of loan available.
1. Merchant cash advances
With a merchant cash advance, you borrow money from future predicted sales transacted by either credit or debit cards.
A lender will need to see your last four months’ worth of either bank account statements and/or statements from your merchant service provider to determine the level of funding they’re willing to advance to you.
The amount borrowed with a merchant cash advance is generally between £5,000 to £500,000.
You make repayments through deductions taken from the daily settlements sent to your by your merchant services provider until the loan and interest is repaid.
2. Angel Investors
Angel investors are ‘Dragon’s Den’-style investors who obtain a stake in your company’s shareholding in exchange for the cash you need.
You don’t pay angel investors back so it’s not a traditional loan.
What’s in it for angel investors is that they hope that, under their guidance and with their money, your company will grow very quickly and profitably.
If it does, they’ll look to sell their shareholding in your business for a lot more than they paid for it.
3. Equity based crowdfunding
Equity based crowdfunding is similar to angel investing except that you sell a shareholding in your business to dozens or hundreds of different investors rather than one or a handful.
The most popular based crowdfunding platform in the UK is Funding Circle.
Most crowdfunding applications requires at least 2 years’ worth of accounts before they will be listed on a platform, however.
4. Rewards-based crowdfunding
This is similar to equity based crowdfunding in the way you raise cash but, instead of giving away shares in your company, you reward investors with gifts instead
10 main sources of business start-up loans
1. UK Government Start-Up Loan
- Borrow from £500 to £25,000
- Includes 12 months of free mentoring, as well as free resources to help you secure future funding
- The rate of interest is fixed – at 6% per annum
- There are no application or repayment fees
- These loans are personal and unsecured
- Your business must be UK based
- Your company must either be about to start trading or have been trading for less than 24 months
- Borrow a maximum of 2 months’ revenue up to £500,000
- Borrowers must have a minimum of 6 months trading history and a minimum £5,000 turnover
- Interest rates start at 1.5% per month
- There are no hidden fees or early repayment charges
- Unsecured loans are for 1-24 months, secured loans are for 48 months
3. Clydesdale Enterprise
- Borrow between £25,000 and £1.2 million pounds
- Loan terms vary from 1 year to 10 years in length
- The loan is backed by the UK government
- Your business annual turnover must be below £41 million
4. Capital on Tap
- Borrow anywhere up to the value of £50,000
- Applications are short, straightforward and decisions are very quick
- Funds can be received as quickly as 10 minutes after applying
- Borrow between £10,000 and £100,000 – with “all circumstances considered”
- APR is available only on request
- Decided on a case by case basis
- No early repayment charges
- Flexible daily payments
- There are no restrictions on what the loan can be used for
- There is a one-off arrangement fee for loans that are less than £25,000
- Borrow between £1,000 and £30,000
- Choose from a 1 year to a 10-year term
- Loans are offered at a fixed 9.3%
- Monthly payments are fixed and there are no early repayment fees
- No arrangement fee applies for loans less than £25,000
- Borrow between £1,000 and £50,000
- No arrangement or repayment fees are applied
- No trading history required
- Personal guarantees may be required by directors
- Repayment terms between 1 and 10 years are offered
8. Yorkshire Bank
- Borrow between £10,000 and £150,000
- Businesses are required to have a minimum 10-month trading history
- No charges are applied for lump sum or early repayments
- Term lengths vary between 12 and 60 months
9. CubeFunder Loans
- Borrow between £5,000 and £100,000
- A minimum of £4,000 monthly revenue is required
- The application process is fast and clear
- Loans come at a fixed cost with no APR
- Minimum lending require is flexible – although a minimum 3-month trading history applies
Frequently asked questions on business start-up loans
How long will it take to get a Start Up Loan?
How long it takes you to secure your start-up loans depends on how much you’re asking for and how long you’ve been trading.
The amount of supporting paperwork and documentation you’ll need depends on the level of risk a lender perceives in approving your loan application.
Some loans can be paid out in under an hour whereas, with the UK Government Start-Up Loan scheme, you may have to wait up to three months.
How much money can I apply for?
This varies by lender but businesses may generally borrow from £500 to £500,000 subject to status.
Are some businesses excluded from Start Up Loans?
You’ll have to check with each lender which types of business they are happy to work with.
For the UK Government Start-Up Loan, they ask companies involved in gambling, property investment, banking, and money transference not to apply.
Can I get a start-up business loan for a home based business?
Yes but this may limit the size of the loan you receive because lenders will worry if the business is entirely dependent on you and your contribution for income.
Can I pay wages with my start up loan?
It depends on the lenders you approach.
Most will be happy for their loan to be used for working capital including the payment of wages.
Others may require that the funds be used for capital expenditure items.
Do I need a business account to get approved for a start-up loan?
Most business funders will only lend to limited companies with separate business bank accounts.
Can I still get a start-up loan with bad credit?
Yes although it depends on how bad your credit history is and on the viability of the business you’re seeking funding for.
Even then, interest rates are likely to be significantly higher on any loan you’re offered.
Find out more
At BusinessCostSaver, we know that the best business decisions require the most accurate information to help you make your mind up.
We also understand that time is precious and you may not have enough of it to do your own in-depth research.
Why not let us find the right business start-up loan for you instead? Our advice is completely impartial and our team are completely focused on getting you the best deal.
Let us know more about you, your company, and how much you need and why.
We’ll deal with lenders on your behalf and our aim is to present you with one or more offers suitable for your business and its future plans.