Everything you need to know about the Start Up Loan scheme

This government-backed initiative can help you fund a franchise. Here’s everything you need to know

One of the biggest hurdles faced by many prospective franchisees is very simple: starting a business is often a costly undertaking.

Sorting out premises, hiring staff, buying enough stock, marketing and promotion can be expensive and often requires money pretty much upfront before you’ve even started trading.

This means that for many franchises, and indeed many standalone businesses too, a decent amount of capital is needed to get the business up and running.

However, because of their lack of business history and often a lack of considerable collateral/cash at the start, new businesses can often struggle to access many forms of finance.

But there is help available. To address this issue and to help support and stimulate entrepreneurship across the UK, the government introduced its Start Up Loan scheme in 2012. Since then, it’s provided over £779 million of funding to early-stage businesses.

What are startup loans?

Put simply, start-up loans are a government-backed initiative that offers a type of finance designed especially to help new UK businesses get off the ground.

Its primary aim is to ensure viable start-ups and new businesses have access to the cash and support they need in order to thrive.

There’s no application fee and anyone who has started – or is going to start – a new UK business in the past two years can apply, as long as they meet the criteria.

The Start Up Loans Company is a subsidiary of the British Business Bank and the funds are provided by the Department for Business, Energy & Industrial Strategy.

Who can get a start-up loan?

To be eligible, you must be over 18 and have the right to live and work in the UK.

You must also have, or have plans to start, a UK-based business that has been fully trading for less than 24 months.

The scheme is designed to support a diverse and wide-ranging variety of new and prospective business owners across the UK, regardless of their background, where in the country they’re based or what sector they’re in.

How much can I borrow, and what about repayments?

You can borrow between £500 and £25,000 to start or grow your new business.

The average is around £7,200, but of course, every business is different and you can borrow the amount you need.

Each individual can only apply for a start-up loan for one business venture. However, all owners or partners in the business can individually apply for up to £25,000 each, with a maximum of £100,000 per business.

Start-up loans are unsecured personal loans and charge a fixed interest rate of six per cent per year. You can repay the loan over one-five years and there’s no early repayment fee. The loan must be repaid in full over an agreed term – it’s not a grant.

What can I use a start-up loan for?

Start-up loans can help new franchisees pay for key expenditure during the early stages of their new business. Some common uses for this cash injection are:

• Launch funding and set up costs, including stock.
• Equipment and machinery.
• Premises.
• Marketing, website and promotional activity.
• Staff recruitment.
• Keeping cash flow steady, especially in the early stages.

Every business has different requirements and you must outline what you intend to use the loan for in your business plan and cash flow forecast and explain how this will help you start or grow your business.

You cannot use the loan to repay other debts, pay for training qualifications or invest in opportunities that don’t form part of your ongoing sustainable business.

What do I need to apply for a start-up loan?

Because it’s a personal loan, you don’t need to provide any business accounts or put forward any assets or guarantors to support an application.

However, as part of the process, you will need to complete a credit check, although a poor credit history may not necessarily stop you from securing a start-up loan – your application would be considered as a whole. You’ll also need to submit a business plan, a financial/cash flow forecast for your business and a personal survival budget.

You’ll be assigned a dedicated business adviser, who will review your documents and work with you to get them ready for assessment.
The assessment process looks at the strength and viability of your business, as shown through all your documents and information in the application process. They’ll also look at the affordability of the loan based on your personal survival budget.

How long does it take to get a start-up loan?

Once you’ve started the application process, you have up to 90 days to complete it.

However, as long as you’re eligible and have completed all the relevant paperwork to a good level your application shouldn’t take long.

If your business plan and financial forecasts are all in order, the application process can be very quick, although this all depends on how prepared you are.

Once the application has been approved, the money is usually in your bank account pretty quickly - even as short as just a week.

What else does the scheme offer?

You’ll get free support and guidance to help write, review and refine your business plan.

If you’re successful in your application for a start-up loan, you’ll also be offered 12 months of free business mentoring and post-loan support to help your business get off to the best possible start.

This sounds exactly what I need. How do I get started?

Visit gov.uk/apply-start-uploan for more information and to start the application process.

The author

Phil Archer is a manager at award-winning chartered accountant and business adviser d&t.