If your business is more than three years old, you can look into applying for a traditional business loan. This loan is a way to get external funds to run or grow your business.
- >
- Business>
- Business loans>
- Startup loans
Startup business loans
Kickstart your new business with a startup loan
Designed for businesses under 36 months, a startup loan can provide the financial boost you need to launch and grow with confidence
Is my business eligible for a startup business loan?
You may be eligible for a startup business loan if your business is less than three years old. You don’t need to apply right at the beginning – as long as your business has been trading for under 36 months, you can still apply.
Startup loans provide a lump sum you can use for things like managing cash flow, paying staff, covering rent, or investing in equipment and tech.
It’s always a good idea to research different loan options to ensure you choose the one that best fits your needs.
What is considered a startup?
A startup refers to a newly established business in its early stages of development, often driven by entrepreneurial founders. While many startups are self-funded initially, they frequently seek external investment to help propel their growth.
A business can remain in "startup mode" for up to three years, meaning the term applies not only to the first year, but also during the early phase of scaling and stabilising operations.
Between 2010 and 2023 the UK business population increased by[1]
1.1million
What do I need to apply?
Specific requirements may differ for startup business loans - it'll depend on the loan provider you choose. But there are some general criteria that usually applies regardless of the lender.
You need to be:
18 or over
A UK resident
Your business must be:
Less than three years old
UK-based and registered
If your business ticks these boxes, then you need to start thinking about the application process. Before you can apply for the loan you’ll need to create a business plan. Your business plan is an important document that sets our your idea, market research, how you plan to make money, repay borrowing alongside a cash flow forecast.
You’ll need to demonstrate the position of your business and illustrate how you plan to use the loan to ensure your business is a success.
Join our SME newsletter for top deals and business insights
You can unsubscribe at any time. Read our privacy notice.
You’ve successfully signed up, thanks!
How is a startup loan different to a typical business loan?
A startup loan acts in a similar way to a business loan. It requires you to go through an application process and then the lender will decide if your business can use the loan and then repay it within a specific timeframe. Some startup loans, including the government scheme, also come with the benefit of support from business advisers.
Startup loans normally come with a greater risk for lenders, so you might have to pay a higher interest rate or have a personal guarantee. You might also find that lenders look at your personal credit history if the business is still in the early stages and doesn't have a credit history of its own. It's a good idea to try and limit your debt before applying, as lots of credit applications in a short space of time could be seen as unfavourable to lenders.
Traditional business loans are typically used by businesses that have been trading for at least two years and you can normally borrow more with a traditional business loan compared to a startup loan.
How to choose a startup business loan
Follow these tips to decide which startup loan is right for your new business:
Work out how much you need
Create a business plan and think about how the loan will positively impact your business. Then search for lenders that are currently offering that amount of money.
Look at interest rates
Once you’ve decided on the loan amount, compare the interest rates as these will vary. The higher the rate the more you're likely to pay overall which could impact your decision.
Find the lowest APR
Compare as many startup loans as possible and try to find the lowest annual percentage rate (APR) for the amount you would like to borrow.
What is the government-backed Start Up Loan?
The government-backed Start Up Loan is a scheme which aims to help small businesses with a cash injection. This is in the form of a loan of £500 to £25,000. To apply, you’ll need to live in the UK, be over 18, and have started (or about to start) a UK business that cannot have been trading for more than three years.
This loan differs slightly from a business loan as it is an unsecured personal loan, which means the applicant, rather than the business, will have a credit check during the application process.
If successful, you can repay the loan over a period of time, ranging from one to five years. The Start Up Loan charges a fixed interest rate of 6% per year and there’s no application or set-up fee, which can make it easier to work out the affordability of the loan for your business.
Pros and cons
Pros
You’ll have money to start your business or continue to grow it
Keep control of the business as you haven’t given away equity
Build a positive credit history if you pay back the loan on time
Startup loans tend to be unsecured meaning you won't usually need to put forward collateral or assets as security
Cons
Interest rates can be higher making it harder to pay back the loan
Startup loan fees can be an extra burden on businesses
Eligibility can be strict so some businesses might not find a suitable loan
Things to look out for
Fees
If you apply for the government-backed Start Up Loan there are no fees involved, but other startup loans could come with some fees attached.
For example, there might be an early redemption fee if you wish to repay the loan before the end of the agreed term, or an application fee which can be a percentage of the loan amount. You might find lenders with no fees, so always look into the terms and conditions of the loan to understand the full story and be sure to check and compare fees when deciding on a loan to apply for.
Eligibility
The eligibility criteria can be strict. Ensuring you have good credit history could help, if you don't then you may not be eligible or you may need to provide a guarantor.
Five myths about startup loans
There are plenty of myths surrounding startup business loans, but it's important to understand the reality of getting one.
Banks won't lend to startups
It’s a common belief that banks avoid lending to startups, but that’s not entirely true. While new businesses can find it harder to get approved, a strong business plan and clear repayment strategy can boost your chances. Plus, there are plenty of alternative lenders that focus on helping startups secure funding.
Business loans are too expensive
Loan costs vary depending on the lender, interest rate, and repayment term. Startups may face higher rates due to limited credit history, but shopping around and building your credit score can help. Borrow only what you need and repay it as quickly as possible to keep costs down.
Applying for a loan is really complicated
Applying for a business loan isn’t much harder than applying for a personal one. Lenders simply want to see that you can repay them. A clear business plan with solid research, projections, and repayment strategy will make the process much smoother.
Business loans are only an option if you have a perfect credit score
A strong credit score helps, but it’s not the only way to secure a business loan. Collateral, guarantors, or building your credit with tools like a business credit card can all improve your chances – just make sure you understand the risks involved.
Grants are better than loans
Grants don’t need to be repaid, but they’re often highly competitive and time-consuming to apply for. Some are limited to specific uses, like R&D. A startup loan can be a faster, more flexible option if you want to keep your plans moving.
Alternative funding options for startups
Business loans
If your business is more than three years old, you can look into applying for a traditional business loan. This loan is a way to get external funds to run or grow your business.
Crowdfunding
Pitch your business idea online and offer perks, rewards or equity to investors if your target's met. Crowdfunding can be a good alternative to startup business loans, but remember getting the amount you need can be a slow process and if you don't reach your funding target you may not get anything.
Business grants
Business grants don’t have to be paid back making them a very competitive form of business finance. Small business grants are available from your local council and could provide the funds to help your business idea.
Alternative funding options for startups
Business loans
Crowdfunding
Pitch your business idea online and offer perks, rewards or equity to investors if your target's met. Crowdfunding can be a good alternative to startup business loans, but remember getting the amount you need can be a slow process and if you don't reach your funding target you may not get anything.
Business grants
Business grants don’t have to be paid back making them a very competitive form of business finance. Small business grants are available from your local council and could provide the funds to help your business idea.
FAQs
Can I get a startup business loan with bad credit?
Getting a business loan with bad credit can be more difficult, but it's not impossible. You may need to accept higher fees or interest rates, particularly if you're looking at more traditional banks to lend to you. You could also consider building your credit score before applying for a loan, or looking at alternatives such as private lenders through angel investment.
How much can I borrow with a startup business loan?
The amount you can borrow with a startup loan varies depending on the provider and loan type. The government-backed Start Up Loan for example allows you to borrow between £500 and £25,000.
Other commercial lenders may lend more, with some lending between £1,000 and £500,000 to limited companies.
What are the common term lengths for startup loans?
Startup loan terms will vary, but you can usually set the term during the application process. Typically the term is between one year and seven years, but some lenders may require it be paid back in under five years.
How long does it take to get a startup business loan?
The time it takes to receive the startup loan funds into your business account will depend on the lender and the amount you're borrowing. Once approved, you should usually expect the funds within 24 hours, but it can take up to a week.
Can I get a startup business loan for a home business?
Yes, you can get a startup business loan for a home business. However, you should still check with each lender to check if your business is eligible to apply.
What can a startup business loan be used for?
A startup loan can be used for a whole range of things to help start or grow your new business. These could include:
Paying wages
Buying equipment such as machinery, tools or computers
Paying bills or rent on office, retail or warehouse space
Paying suppliers and stocking up inventory
Marketing and advertising your business
Do I need a business account to apply for a startup loan?
Whether you need a business account to apply for a startup loan depends on the lender. Many traditional banks require a business account with them to process your application. However, some lenders, including government-backed schemes like the Start Up Loan, may allow funds to be deposited into a personal account. Always check the lender’s requirements before applying to ensure you meet their criteria.
Can I repay a startup loan early?
Yes, you can repay a startup loan early but you may get an interest penalty based on your remaining loan balance. Check with your lender if you can afford to repay your loan early.
What happens if I can't keep up with repayments?
If you fall behind in repayments, or find you're struggling during the term of the loan, it's important to notify the loan provider straight away. If you ignore the situation, it can have a negative impact on your credit file — potentially on your personal credit file too — making it harder to get other forms of credit or even certain types of jobs.
Are startup loans hard to get?
Startup loans can be difficult to obtain – it depends on the information the provider requires, how quickly you're able to provide it and how well you can evidence your business plan and ability to repay borrowing.
Carrying out research and ensuring you have a thorough business plan can make the process more straightforward and hopefully reduce the chance of disappointment.
Is collateral required for a startup loan?
Collateral is generally not required for a startup business loan, especially if applying for government-backed loans or smaller loan options designed specifically for startups. However, some lenders may ask for collateral depending on the loan type, the amount you're borrowing, or your creditworthiness. Be sure to check with the lender to understand the specific requirements for your loan application.
About the author
Didn't find what you were looking for?
Other small business products
Customer Reviews
by 1,070 people
A great opportunity to save given 2025 rates - wish I'd known about this company sooner
Checked mortgage rates with this company and found site really easy to navigate and compare. Will definitely revisit when my mortgage comes up for renewal.
Helena Farrington
Found the Perfect Pension with Ease
money.co.uk made it easy to compare pension options and helped me find a great plan that suits my long-term goals.
Gokul
Excellent
Excellent! Used to get my mortgage sorted. The team were very patient to relook through options even though my circumstances changed after my initial offer was finalised. Highly recommend.
Yaz
We’ve been featured in
References
1. UK small business statistics 2023 Federation of Small Businesses - Business Population Estimates