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Start-up loans for new businesses

Are you looking for a new business start-up loan?

Yes? Then before approaching a typical high street bank, take a look at the Government-backed Start Up Loans. These offer loans between £500 and £25,000 to either start or grow your business providing you have been fully trading for less than 24 months.

In this article we will take you through:

  • What exactly a loan is
  • How much you can borrow
  • The advantages
  • The disadvantages
  • Eligibility criteria
  • Interest rate and repayment details
  • How to apply
  • Other help available

What is a loan

It is vitally important that before taking out any sort of business start-up loan, you understand what it is.

The simple explanation of a loan is a sum of money that has to be paid back with interest. This is totally different to a grant where you do not have to pay the monies back.

Whilst you won’t need to put forward any assets or guarantors to support your application for the loan, you must understand you will be personally liable to repay any monies whether your business is successful or not.

How much can you borrow?

All owners or partners in a business can individually apply for up to £25,000 each.

Therefore, if you are a sole trader, you can apply for the £25,000. However, if you are a limited company with four directors, each director may apply for the £25,000 (£100,000 total for the business).

Advantages of the Government-backed Start-up Loan

There are a number of advantages of using a start-up loan provided by the British Bank rather than a high street bank.

Business planning support

One is the support you will receive in putting together a business plan. For any type of business loan, you will need a robust business plan to support it. A business plan is required by any lender to show you understand fully the market you are entering, to explain clearly what you are offering and to show you have undertaken realistic financial forecasts. Support in putting together a business plan can be invaluable.

Ongoing mentoring

The other key advantage of using the British Business Bank is you will receive 12 months of free mentoring for your business once your loan is approved. Again, mentoring can be invaluable in the early days of a business to help it achieve its success.

Access to learning

If you are going into business for the first time, it can be a minefield as there is so much to learn. The Start up Loans company has joined forces with the Open University to provide a range of free courses to successful applicants. These courses include:

  • Entrepreneurship
  • Career and Leadership
  • Finance and Accounting
  • Marketing and Commercial Awareness
  • Project Management

The disadvantages of the Government-backed Start-up Loan

As with many things, there can be disadvantages. The key ones we have found are:

The process

This can vary from person to person. For some people, the process can become unnecessary lengthy if they are looking for a quick decision.

Eligibility criteria

You would expect the eligibility criteria to be the same for everyone, but apparently, that is not always the case. In some cases, applicants have been asked to prove they have been declined for a business start-up loan from other sources. This is listed as one of the criteria on the Business Bank site but is not always a question asked! It appears to be a game of roulette!

Mentoring

You cannot who you get to mentor you. With mentoring, the best experience is where you have a mentor who understands your business industry. Whilst mentoring is still useful, some applicants have felt frustrated with mentors of a different age set, mindset and with no knowledge of their specific industry – think a retired farm manager mentoring an 18-year-old Pilates instructor. The connection may not always be there.

Eligibility criteria to apply for the Start-Up loan

There are a certain set of criteria you must meet in order to be eligible to apply for the Start-up Loan:

  • Your business must be based in the UK
  • You must be a UK resident and remain in the UK for the duration of the loan
  • You must have a right to work in the UK
  • Your business must be a start-up or within its first 24 months of trading
  • Your business must not be for any of the following:
    • Weapons
    • Chemical manufacture
    • Pornography
    • Drugs
    • Illegal activities
    • Banking & money transfer service 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
  • The Start-Up Loan can only be used to fund the initial cost of starting and developing a business and not for any of the following:
    • Debt repayment
    • Training, qualifications or education programmes
    • Investment opportunities that do not form part of an ongoing sustainable business

Interest rate and repayment details

Interest is on a fixed rate of 6% per annum and the loan can be repaid between a 1 – 5-year period. There are no penalties for paying back the loan early.

How to apply

To apply for the Start-Up Loan you will need to visit the British Business Bank and go through the eligibility checks. You will then need to submit a Business Plan, Cash Flow Forecast and Personal Survival Budget.

 

IMPORTANT: Please note, this information is correct at the time of publication but subject to change so please refer to the Start Up Loans website for updated information.

 

Additional help and support

If you are starting a business or thinking of starting and would like valuable help and support, at Maynard Johns, we offer a free one-hour consultation to help you get off on the right foot. Take a look at our Help Starting a Business for more information.

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