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Loans for Startup Business : What You Should Know

Gregoire Serre

Gregoire Serre

Financial analyst

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Starting up a business takes creativity, determination, energy and money. A major challenge that many entrepreneurs face is finding enough capital to get their business ideas off the ground. Unfortunately, many traditional lenders are loathe to take a chance on a fledgling business and may baulk at the idea of loaning them money. This leaves anyone looking to launch a business or develop a newly formed business at a disadvantage. This article gives you a quick guide to loans for startup businesses, what they are, what the benefits and risks are, what types of startup loans are available and how you can apply. Keep reading to learn how you can use a startup business loan to make your dream of running a business a reality. 


What Are Startup Business Loans?



To encourage the development of new businesses, the UK government introduced the concept of loans for startup business owners. Startup business loans are now offered by the UK government and also by other alternative lenders and finance providers. 


If you are considering starting a business or have already launched a business but have not been trading for very long, then a startup business loan could be just what you are looking for.


Startup business loans are a type of financing available to new or just established business owners. Startup business loans are designed to help people launch a new business or grow a business that does not have a long history of trading. Many lenders do not want to loan funds to new businesses because these ventures can be seen as being ‘high risk’. A startup business loan is not the same as a small-business bank loan. They are regarded as personal loans that are to be used solely for business purposes. Most startup business loans are unsecured. This means if you take out a startup business loan, then you will not have to use your own personal assets as collateral.


Startup business loans are available via online lenders, traditional banks and investors. However, most people who want to start a new business in the UK will opt for a loan from the Start Up Loans Company, which is backed by the UK government. In fact, the UK government has instructed traditional banks and lenders to direct customers they cannot assist to alternative options such as the Start Up Loans Company and British Business Bank Investments.



What Are the Benefits of Loans for Startup Businesses?



There are many benefits associated with taking out a startup business loan. For a new business owner, a startup loan is a relatively quick and easy way of securing financing for their enterprise without having to put their own assets up as security. Additionally, many startup business loans have a fixed interest rate of just six% per annum and offer flexible repayment terms.


Another one of the great benefits of UK government-backed loans for startup businesses is that they provide support during the application process and provide business mentoring services for a year, free of charge. 



Who is Eligible for a Startup Business Loan?



If you are interested in applying for a startup business loan, you will need to make sure you meet the following criteria:

  • Applicants must be aged 18 years or older
  • Applicants must have their primary residence in the UK
  • The business must be brand new or less than three years old 
  • The business must be based or will be based in the UK
  • Applicants must have the legal right to live and work in the UK
  • Applicants must be unable to secure financing from other sources
  • Applicants must pass credit checks and prove they can afford repayments 


You can apply for a startup business loan for a wide range of enterprises. However, it should be noted that not all types of business ventures qualify for a startup loan. You cannot, for example, apply for a startup business loan if your business is involved with supplying or providing:

  • Weapons
  • Pornography
  • Drugs
  • The manufacturing of chemicals
  • Money transfer services and other banking activities
  • Property investment
  • Gambling and betting services


Charities are not eligible, however, not-for-profit and social enterprises are considered on a case-by-case basis. 


Startup business loans are to be used only for the purposes of funding a business and cannot be used for the repayment of personal debt, to acquire training or educational services or used as investment funds where the investment is not connected to the business.  

How Much Money Can You Apply For?



Startup business loans range between £500 to £25,000 per person. So, if you are in a partnership, each partner can apply for a maximum of £25,000 each. It should be noted, however, that the maximum amount any one business entity can apply for is £100,000.



How Do You Apply for a Startup Business Loan?



To apply for a startup business loan, you can fill out an initial online application form via the Start Up Loans Company website. A business advisor will then be assigned to you who will assist you in completing the application in full. You will need to pass a personal credit check and provide documentation such as a detailed business plan and cash flow forecasts. 



What Are the Risks with Loans for Startup Businesses?



Because startup business loans are designated as unsecured personal loans if you default on the repayments, it will negatively impact your credit rating. Charges may be applied to repayments that are not made or made late. If these charges are not paid, you may be held personally liable and may receive a county court judgment (CCJ) or have the amount owed moved into the hands of a debt collection agent.


Launching any kind of business means making sure that you stay on top of your finances. Mooncard makes it easy for business owners to track their startup expenses, like registering a company or their initial labour costs


Every time you make a purchase using your Mooncard, a digital record is taken of the receipt and sent to your accounting department. This makes it simple for business owners to know exactly where their money is going.

If you would like to try Mooncard for yourself, just visit our website to book a free, no-obligation online demonstration


Find out more about start-up costs : 

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Gregoire Serre

Gregoire Serre

Grégoire Serre has been a financial analyst at Mooncard since 2021. He previously worked at Ernest & Young and Heineken, gaining solid experience in the finance and audit sectors. He is passionate about economics, accounting and entrepreneurship.