The Bionic guide to start up loans for business

Les Roberts, Senior Content Manager at Bionic
By Les Roberts, Senior Content Manager

Starting a business is rewarding, but it comes with its challenges, whether personal, logistical or financial. Most startups will need some sort of finance at some point, whether that’s to get the business up and running in the first place or to fund growth a little later on.

For new companies that need to access funding quickly, business start-up loans could offer a solution.

Let’s take a look at what exactly small business start-up loans are, how they work, and how you can apply.

What is a start-up loan?

Start-up business loans are unsecured UK government-backed personal loans of up to £25,000 that are used to help start a new enterprise or grow an existing one, as long as it has been trading for less than 24 months. This means they’re available for new business owners during their first two years of operating, not just available to those who are yet to start trading.

These loans can be spent on a wide range of things related to your business, such as equipment and stock, business premises, or marketing and promotional expenses. 

To access a start-up business loan in the UK, you’ll need to show your lender a business plan that explains what you’ll use the loan for. You’ll also need to provide a cash flow forecast outlining how the loan would help you set up and/or grow your business.

How do start-up business loans work?

Start-up loans work much like other types of business loans - you’ll borrow money from a lender, which then needs to be repaid, along with interest, over a specified period of time. But there is a key difference - unlike other types of business loans,  start-up loan agreements are actually made with an individual, rather than a business. 

Furthermore, they are also guaranteed by the government, meaning that lenders have more assurance that they will get their money back, which means the lending criteria might not be quite as strict as other types of loans, but this will all depend on individual circumstances.

Are start-up loans available for home and micro businesses?

There is no restriction on the type or size of your business when it comes to start-up loans. As long as you meet the lending criteria set out by the government (see below), you can apply for funding. This means a home or micro business could apply.

However, there are other types of new business loans available in the UK specifically for smaller businesses. For example, the Northern Powerhouse Investment Fund offers microloans for startups specifically in the north of England.

Other private lenders also offer micro-lending, or start-up business loans for borrowers with bad credit ratings. These are distinct from the UK government-backed scheme described above.

Do you need a business bank account to get a business start-up loan?

No, you do not need a business bank account to get a start-up loan, as these are essentially personal loans to be used for business purposes. But if you’re planning for your business to be a success, it is a good idea to get a business account as soon as possible and to keep your business finances separate from your personal finances.

Do you need a business plan for a start-up loan?

Start-up loan providers in the UK will require you to present a viable business plan before you can apply for funding. If you are a new business looking to secure any kind of finance, a business plan is probably a good idea anyway.

Who can apply for a start-up loan?

To apply for a government-backed start-up business loan in the UK, you need to live in the UK, be at least 18 years old, and have a business that has been operational for less than two years - or have plans to start one (including a business plan).

There are some activities that can’t be funded with a start-up loan, such as debt repayment, training qualification and education programmes, and investment opportunities that are not core to your business.

The government works with a number of providers to fund small businesses in this way, and some of these lenders will have different criteria.

Furthermore, there are other types of start-up business funding that are separate from the government-backed start-up loans scheme. Again, lenders will have different criteria around who can apply for these, but you would normally need a viable business plan before you can get started.

How much can you borrow with a start-up loan?

Any individual can borrow up to £25,000 under the government-backed start-up loans scheme. However, several directors of the same company can apply for individual loans, with the maximum available to a single business set at £100,000.

It may be possible to borrow more from lenders offering different forms of start-up business funding outside of the government-backed scheme.

What types of start-up business loans are available?

If you need funding, the government-backed start-up scheme is the first type of new business loan you should look into. If your business qualifies, the government guarantee means that your application might have a better chance of acceptance than if you look for a comparable loan that’s not included in the scheme.

But remember, the government guarantee is only to cover any losses to the lender, and if you default on repayment, this will affect your personal credit score and could cause you problems when applying for future credit. Your lender might also take measures to recover the debt, which could see you issued with a County Court Judgement (CCJ) and lead to your business being wound up. 

Besides the government scheme, there are also other types of small business start-up loans available, each with different terms, pricing and limits. Most of these are offered by private lenders. Although they are distinct from the government’s guarantee scheme, they may still be described by lenders as a form of start-up business funding as they are specifically tailored for new businesses.

Some of these are start-up business loans that can be taken out without a personal guarantee or security. However, there’s a chance you will have to pay more in interest, certainly compared to the government-backed loans.

How to choose the right start-up loan for your business

Taking out the right start-up loan for your business is critical. To choose the right one, you need to consider how much you want to borrow, and what terms you are prepared to accept.

You also have to take into account your own circumstances. For example, do you have a poor credit rating? If so, you might need to look for start-up business loans for people with bad credit.

Perhaps you don’t qualify for the government’s start-up loan scheme, in which case you might have to look to private lenders that offer loans for new limited companies. This is where the business finance team at Bionic can help - we can match business owners with the right finance options from a range of lenders.

Where to get a start-up business loan

The place to begin when looking for a start-up business loan in the UK is the government’s own website - From here, you can check if you are eligible to borrow up to £25,000 from one of its lending partners. 

If you need to borrow more money or if you do not qualify for the government scheme, there are many other lenders in the private market that can help out with funding for your business. These range from high street banks to specialist ‘peer-to-peer’ lenders.

Is there any other financial help available for starting a business?

Besides start-up loans, there is plenty of other financial help available for new businesses in the UK. Of course, you could look to the commercial lending market - i.e. banks - to see what financing is on offer. However, there are also plenty of government grants and non-government grants for new businesses available.

For example, a grant. This is money given to support businesses without the need to be paid back. You won’t be offered millions of pounds through a grant, but a little bit of financing that does not need to be repaid can go a long way to helping you set up your business.

To find out what grants are available, check out our guide to the best grants for small businesses in 2022.

What loans can you get to start a business in the UK?

There are a number of finance options available to anyone looking to start a business, of which a government-backed start-up loan is one. Other options include:

  • A business loan from your bank or another traditional lender. It might help if you first go to the bank you hold a personal account with as you already have a relationship. 
  • A business loan from an alternative lender. It's worth checking out non-high street lenders as they may offer better loan terms than traditional banks.   
  • A peer-to-peer loan. This will match you with individuals or other businesses that are looking for investment opportunities.
  • Crowdfunding is a way of raising money by taking smaller donations from multiple investors. You can set donations at any level you want and it's worth offering incentives for larger donations, such as shares in your business.
  • Investment angels can offer a more holistic approach to helping you start up as they offer things valuable contacts and networking opportunities, as well mentoring and ‘skills-injections alongside a cash investment.
  • A loan from family or friends. Before you go down this route you should make clear the risks of investing in your start-up.

Whichever route you choose, you'll need to have a robust business plan along with realistic forecasts and projections so that lenders and investors can be confident of making a return.

How can Bionic help you find the right business finance?

Whether or not start-up business loans are right for you, Bionic can help you finance your new or growing business. 

A call with one of our team of small business specialists will help us to establish what kind of financing you need and how you can access it. We will also get you the best price on the market while we’re at it.

So call us today to tell us all about your business, and we’ll do the rest.