Business loans for startups in the UK: what are your options?
By Helm, Funding Specialist
- The Government Start Up Loan scheme offers up to £25,000
- Most traditional lenders want at least 2 years of trading history
- Alternative lenders may accept businesses with as little as 3 months of history
- Merchant cash advances are available once you have card processing data
- Grants do not need to be repaid and are worth exploring
Starting a business is exciting, but funding the early stages can be challenging. Banks are reluctant to lend to new businesses, and traditional lenders want to see years of financial history you simply do not have yet.
This guide covers every realistic option for UK startups, from government-backed schemes to alternative lenders who are willing to take a chance on new businesses.
Government-backed Start Up Loans
The Government-backed Start Up Loan scheme is specifically designed for new businesses. It offers personal loans of up to £25,000 per person for business purposes, with a fixed rate and no application fee.
To qualify, your business must be under 3 years old (or not yet started), and you need to be over 18 and living in the UK. The scheme also provides free mentoring and support.
- Borrow up to £25,000 per person (up to £100,000 for a partnership)
- Fixed rate with no early repayment fees
- Free mentoring and business support included
- Available to businesses under 3 years old
- You need a viable business plan to apply
Alternative lending for startups
If you have been trading for at least 3 months and processing card payments, you may qualify for alternative business finance.
| Option | Min. Trading History | Based On | Speed |
|---|---|---|---|
| Merchant cash advance | 3 months | Card transaction data | 24 to 48 hours |
| Revenue-based finance | 3 to 6 months | Monthly revenue | 24 to 72 hours |
| Online unsecured loan | 6 to 12 months | Revenue and credit | 1 to 5 days |
| Crowdfunding | None | Business concept | 30 to 90 days |
| Angel investment | None | Business potential | Varies |
Grants for startups
Grants are worth exploring because they do not need to be repaid. While competitive, they can provide a significant boost to a new business.
- Innovate UK grants for technology and innovation
- Local council business grants
- Industry-specific grants and competitions
- Prince's Trust grants for young entrepreneurs
- Regional development fund grants
Building towards better funding options
Even if you cannot access the funding you want right now, you can take steps to build towards it.
- Start processing card payments as early as possible
- Build a track record of consistent monthly revenue
- Keep your personal credit in good order
- Maintain clean, well-organised business accounts
- Start with a smaller funding amount and build a repayment track record
Common mistakes startups make when seeking loans
Avoid these pitfalls when looking for startup funding.
- Applying to banks before you have enough trading history
- Borrowing more than your business can comfortably repay
- Ignoring the total cost by focusing only on the headline amount
- Taking on personal debt when business finance options exist
- Not exploring grants and government-backed schemes first
Frequently asked questions
Can a brand new business get a loan?
Yes, through the Government Start Up Loan scheme. For alternative business finance like merchant cash advances, you typically need at least 3 months of card processing history.
Do I need a business plan?
For government-backed loans and bank finance, usually yes. For alternative lenders like merchant cash advance providers, a business plan is not required.
What if I have no revenue yet?
Focus on grants, the Start Up Loan scheme, or personal savings. Revenue-based finance options become available once you have a few months of trading history.
Can I get a startup loan with bad personal credit?
The Start Up Loan scheme considers your overall application, not just your credit score. Alternative lenders focus on your business revenue once you are trading.