Startup Business Loans

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Written by Richard Wilcock | Reviewed by Simon Moorcroft | Updated: April 30, 2024

If you have a new business idea that you need to get off the ground, or if you’re already set up but with little trading history, then a startup loan can be a great way to accelerate your growth.

We partner with a range of private companies and government-backed funders who facilitate the funding. Read on to learn how you can access funding for your startup.

What is a startup business loan?

A startup business loan is a form of finance for individuals who are in the early stages of planning or growing their business.

It can help buy premises, purchase stock, raise capital for marketing and advertising costs or give you the straightforward working capital to get you going.

How can a startup loan help my business?

A startup loan can help you launch your business or expand your existing business if it’s still relatively new (usually around three to five years).

How a loan can help your startup:

  • Cover initial startup costs - Starting a business can get expensive, quickly. From buying stock, hiring staff, purchasing patents — there’s all kinds to do. Use your startup loan to help you get started.
  • Keep cash flow positive - Healthy cash flow means you can pay your bills on time and avoid late fees or penalties. Ultimately, good cash flow means your business is running smoothly and can afford to invest in growth.
  • Improve your credit score - By making timely loan repayments, you’re demonstrating your creditworthiness. This will make you more attractive to future lenders or investors.
Making a business plan for your start up business loan is essential

How can I apply for a start up business loan?

Applying for a startup business loan is straightforward. We work with a range of lenders, including government-backed lenders, who can help. Simply complete our short application form, and we'll match you to the most suitable business loans for your startup business.

Our business loan matching platform lets you see the funding options you're eligible for in minutes. Compare them in your own time and only connect to the lenders you want a quote from — it's free to use, and there's zero obligation.

To apply for a startup loan with one of our lenders, you’ll need to present them with your business plan. This is to ensure your business idea is viable and that they’re making a sound lending decision.

Am I eligible for a startup loan?

If you meet the below criteria, you might be eligible:

  • A brand new business, or have been trading for less than 36 months
  • Over the age of 18
  • A UK resident
  • UK-based business
  • You can afford to repay the loan
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What types of startup business loans are there?

There are many types of startup business loans available and we’re always adding new funding partners for startup ventures to our panel. Here are a few types you may wish to consider:

Secured Business Loans - A secured business loan is a type of funding that uses an asset such as your property or other tangible entity as security against the borrowing. This lowers the risk for the lender and usually offers a better rate on the finance.

Unsecured Business Loans - This type of business loan is unsecured and doesn’t require you to secure an asset against the borrowing. As there is no security involved, there is a greater risk to the lenders so there is usually a higher rate of interest on the finance.

Bank Loans - Traditional bank loans for business startups. Most of the high street banks offer a small business loan product, but a startup loan from a bank may have strict eligibility criteria.

Crowdfunding - Popular crowdfunding platform sites like Kickstarter and Indiegogo are great for new business ideas and startup projects. Not only do you raise the finance required to launch your product, but you gain high brand awareness by encouraging many investors to join in. Read more about crowdfunding for your business.

Business Accelerator Programmes - Entrepreneurs can receive investment and receive business development and training.

Peer to Peer Lending - Peer-to-peer lending platforms allow you to connect your startup business to multiple private investors who are willing to lend you money. Unlike crowdfunding, this concept does not require you to give up any shares or equity.

Government Start Up Loans - There is also straightforward traditional government-backed funding available through The Start Up Loans Company. Apart from funding, they also offer ongoing mentoring and support for people looking to start or grow a business.

Business loans from family and friends - By borrowing money from relatives or friends for your startup, you can save a lot of money on interest rates, whether it’s a lower interest rate or no interest at all. When borrowing money this way, it’s important to write up a formal repayment plan so both parties know what to expect. Outline how much you’re borrowing and how you plan to repay.

Business credit cards - Even if you don’t have much trading history (particularly if you’re a startup), it’s still possible to apply for a business credit card as a startup. Some providers may want to see your personal finances before making the decision to set up a business credit card.

Equity finance - Equity finance is a great way to get funds to grow your startup business without having to repay the loan. Instead, you’d give away equity in your business. Types of equity financing include angel investment and venture capital.

What are UK Government startup loans?

UK Government startup loans are Government-backed loans provided by a subsidiary of the British Business Bank. New businesses can apply for up to £25,000 in loans to help launch or grow their business.

It’s not just financial support borrowers can access, when the loan is approved, borrowers can take advantage of 12 month’s free mentoring, to help grow your business further.

According to the British Business Bank, the average loan amount is £9,295 and borrowers can repay the loan over one to five years and with a fixed interest rate at 6% per year, you might want to consider apply.

It’s also worth noting there are no fees for early repayment or to arrange the loan.

Do I need a business plan for a startup loan?

Yes. A business plan is basically like a blueprint of your business. From marketing to your financial outlook, startup loan providers will need to see this document that sets out your business idea and all your future goals and strategies. This helps them understand your overall objectives, including how the funding will be used.

Providing as much detail in your business plan as possible will help strengthen your loan application. If you need help, you can follow this guide on how to write a business plan for your business.

The good news is that alternative business lending offers products that generally make the application process much quicker than traditional lending. If you have your business plan to hand, you will find that there isn’t a great deal of administrative paperwork from the lender to complete the loan application.

Business woman pitching a new business startup idea

Can I get a business startup grant?

Yes, there are many grants available to start up businesses in England, Wales, Scotland and Northern Ireland. Grants are non-repayable sources of funding.

They may prove challenging to get, but you should consider exploring grants. They can help cover some of your costs and boost your business growth and development.

Did you know? You can search for grants, finance and support in your area by using our free business grant finder or the UK government's finance finder tool.

Although we don’t directly offer business funding through any grant schemes, we can give you details of any grant incentives in your area. We offer access to startup loans from both corporate and government-backed schemes. Use our free business grant finder.

What is the difference between a startup business loan and a grant?

A business grant is usually a form of funding that your business doesn’t have to pay back to the funding scheme. And a business loan is repaid in monthly instalments with interest.

Usually, most business startup grants in the UK are government-backed. Some are part of a larger scheme such as a charity trust or large corporate company who are able to provide grant funding for certain communities or startup enterprises.

With a business grant, the money is made available to you to cover startup costs such as training courses or initial equipment requirements. Most types of grants do expect you to match at least 50% of the value of the awarded funding. In most cases, the grant providers expect your business to offer regeneration or further employment as part of your business plan objectives.

In comparison, a business loan is much quicker to apply for and obtain. You fill in the application form, and depending on the type of business loan, you could have funds in your bank account in a matter of days.

What our experts say

"Startup business loans and grants are intended to work with your business ideas and goals. It isn’t a one size fits all solution. In many cases, the scenario for each business is different and may require funding for a range of various requirements. They are designed to fit with your cash flow and not put you or your business under financial pressure."

Simon Moorcroft
Simon Moorcroft

Director and Co-Founder

Can I get a startup business loan or grant if I’m unemployed?

Absolutely. There are a range of startup loans and grant schemes available in the UK specifically for unemployed people, or on certain benefits.

Business Startup Grants and Loans in the UK

We have also compiled a list below to some other useful business startup grants and startup loan providers in the UK.

The Prince’s Trust

The Prince’s Trust is an enterprise programme for people between 18 and 30 who are unemployed or currently working less than 16 hours per week.

The Royal British Legion

Designed for the Armed Forces community, The Royal British Legion’s Civvy Street provides support to both service and ex-servicemen and women who want to become their own boss.

County Council or Community Council

Speak to your local business support team or economic development unit at your local or County Council. They may have access to local funding support for your business.

Northern Powerhouse Investment Fund

The Northern Powerhouse Investment Fund (NPIF) has over £400 million available throughout the North of England through its Micro Finance product.

This type of finance can be used by startup businesses, small businesses and SME's at differing stages of the business lifecycle. It can be used for growth and development projects, working capital, funding expansion projects, leasing commercial premises and equipment acquisition.

The options are:

NPIF Funds Available Amount
Micro Finance £25,000 - £100,000
Debt Finance £100,000 - £750,000
Equity Finance £50,000 - £2,000,000

You can also look at a range of business finance grants available by using our business finance grant finder.

Start your search for business funding
Check your eligibility for business funding

Checking won’t affect your credit score

Is there funding for community business startups?

There are many community and not for profit schemes available:

This Big Lottery Fund

This National Lottery Community Fund is a grant scheme who fund local community-based projects in the UK. You can apply for funding for a community project or community business via their website. There are multiple programmes available for a variety of community-based projects. The funding is aimed at improving the local community, environmental positive change, improving health, and enabling young people to become more active.

Charity Bank

If you are a not for profit entity such as a charity and you are looking for a bank loan you could try Charity Bank. Founded to support charities and charitable activities and are there to support social change and value in the community. Some high street banks also have a dedicated business loan product for community loans such as Natwest.

Power to Change

A charitable trust set up to support community business with funding and mentorship. Power to Change gives funding that will help empower local communities to create businesses in response to local requirements. There are grants and share options available.

Volunteers helping out new not for profit start up charity in local community

Can I get a business startup loan with bad credit?

Yes, you can apply for a startup loan with bad credit. Our lenders look at applications on a case-by-case basis, making their decision after getting to know you and your business model. So don’t let adverse credit history put you off making an application.

Check out our business credit score guide for more information on how to improve your credit rating.

Does my new business qualify for a startup loan?

To be eligible for a startup loan, your circumstances must meet specific requirements that are set out by the funder. This can vary from lender to lender. But, before you apply, you must at least fit the following minimum criteria:

  • Starting a new business
  • Have already, or are looking to set up as a sole trader/self-employed, Limited company (LTD) or Limited liability partnership (LLP) in the UK
  • You are 18 years of age or older
  • A UK resident
  • You want to start a business in England, Scotland, Wales or Northern Ireland

Your business could also qualify if your existing business has been trading for less than 36 months.

Do I need a business bank account to get a startup loan?

This will depend on your business setup, the loan and the lender you choose. If your startup is registered as a limited company, then you are legally obliged to have a business bank account. However, sole traders are not obliged to do so.

If you are a new business or startup company looking for a bank account, you can compare startup business bank accounts here.

What are the rates and fees on startup loans?

Costs can vary as each product is designed differently. By making an application, we can help connect you to the right lenders for your business idea. You can then decide which option is right for you and your business. We’re just happy to be able to help in the process.

Remember, Capalona is free to use and there is absolutely no pressure or no obligation to proceed - even if you are in the very early stages and you’re just looking for costs.

We are proud to support the entrepreneurial British startup business. If you would like to start your search for business funding, simply apply online and we’ll present you with your funding options in minutes.

About the author

Richard Wilcock
Written by Richard Wilcock

Money Writer, Director and Co-Founder

Richard is one of the Co-Founders here at Capalona and has over twenty years of experience in the marketing industry, specialising in the finance sector.

Updated: April 30, 2024
Published: August 10, 2017
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