What is the Start Up Loan scheme?

startup loan scheme

There are many funding options available to help you launch a new venture or grow your existing enterprise in the UK. One such source, the government-funded Start Up loan scheme, has been around for a number of years and remains a popular choice for many budding entrepreneurs. So how does the scheme work exactly, how easy it to apply, and what are the eligibility criteria?

A brief history

The scheme was first launched in 2012 when a £150 million fund was made available to help new businesses get off the ground in England, Scotland, Wales and Northern Ireland. Since then, more than 50,000 business ideas have been backed to the tune of over £350 million in loans. As well as finance, the scheme also provides mentoring and ongoing support for those who qualify for a loan.

Some key features

You can apply to borrow from £500 up to £25,000 to support your existing business or new business idea. Owners or partners of the business can each apply for the loan, up to a maximum of £100,000 in total. The Start Up scheme is not a grant and the money has to be paid back over one to five years, at a fixed interest rate of 6% per annum. The loan is unsecured, which means you don’t have to put up any assets in return for the money, or have the backing of a guarantor to support your application, and there are no setup or application fees.

Eligibility for a loan

To be considered for a Start Up loan, you have to be: 18 or over, a UK resident and qualified to work here. The business has to be based in the UK and maybe a new business or one that has been trading for no more than 24 months. You’ll have to pass a credit check and show that you’ve been unable to get finance from your bank or other sources. Having a poor credit history won’t automatically exclude you from the scheme, but it will be taken into consideration before a loan is approved. To show that you’ll be able to meet your monthly repayments, you’ll have to submit a ‘personal survival budget’ with your application, detailing your monthly income and expenses.

Is your business viable?

Another key factor in determining your eligibility for a loan is whether or not you have a viable business. Will your business be able to generate enough revenue to cover your running costs, including your loan repayment? To assess this, you’ll be expected to show that there is sufficient demand for your goods or services that will allow you to meet the goals set out in your business plan.

Some business types are excluded

Although most types of business can apply for a Start Up loan, including a new franchise business, the following are excluded:

  • Weapons or arms manufacturer
  • Property investment
  • Banking
  • Money transfer services
  • Gambling, online gambling, betting services
  • Pornography

The list isn’t exhaustive so, if in doubt, check before applying. It’s important to note that loans can’t be used to repay existing debts, for education programmes, training, qualifications or for investing, unless it’s in an ongoing and sustainable enterprise.

How to apply

There’s a three-stage online process to applying for a loan. First, you have to register by providing some personal details about yourself and your business.

apply for start up loans

You will then be assigned a business adviser who can help to prepare your application at stage two. Here you have to state how much you want to borrow and how the money will be used. At stage three, you must submit a business plan plus a cash flow forecast and the personal survival budget mentioned earlier. You can get help preparing the forms from your advisor and/or download free templates for each form. When you’re ready, submit your application for review.

What happens next?

Your application will be assessed and, if approved, you’ll be sent a loan agreement to sign, followed by the loan amount. You’ll also be able to get one-to-one mentoring for the next 12 months.

How much do you need to borrow?

If you’re unsure how much you need to borrow, or how much you can afford, there’s a handy loan repayment calculator on the Start Up loan site which will show you exactly what you’ll have to pay every month. You can also apply for a second loan if you’ve already taken out a Start Up loan and have been running the business for no more than 24 months.

How quick is it to arrange?

Applying for a loan is fairly straightforward but it’s not quick and you do have to produce the required documentation. Coming up with a cash flow forecast and business plan is an important part of the process. By using the available templates, you can at least be sure the forms will include the information the loan assessment team is looking for.

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