Start Up Loans: The key to starting a business and growing it
Starting a business is exciting. It can also mean trying to secure finance without the thing traditional lenders often want to see most: a track record.
If you haven't started trading yet, or your business is still in its early stages, you might assume that borrowing simply isn't an option. That's where the Start Up Loan scheme can help.
A government-backed finance option designed specifically for people starting a business, a Start Up Loan looks at more than just trading history. It considers your personal affordability, your business plans, and whether the numbers stack up.
But what happens when your business gets off the ground and you need more finance to take the next step?
We spoke to Nabeel Akhter, Senior Investment Manager at First Enterprise, who oversees the Start Up Loan programme, to find out how the scheme works, what applicants should consider before applying, and how an eligible business can access a second Start Up Loan.
What is a Start Up Loan?
A Start Up Loan is a government-backed Business Loan designed for individuals who want to start a business but don't have an established trading history.
As Nabeel states: "The Start Up Loan is a government-backed Business Loan. It's for an individual who wants to start their business, but don't have any trading history, or haven't even started making sales."
Unlike a traditional Business Loan, a Start Up Loan is a personal loan for business purposes.
Applications are assessed on an individual basis, with the lender looking at both the applicant's circumstances and their plans for the business.
This can make it a useful option for people who have a strong business idea but haven't yet built up the trading history that a traditional lender may expect.
Why might a Start Up Loan be right for you?
One of the biggest advantages of the Start Up Loan scheme is accessibility.
If you've been trading for less than five years, getting finance from a traditional high-street lender can be difficult. Without an established trading background, there may simply not be enough history for them to assess.
A Start Up Loan takes a different approach.
Nabeel explains that: "If you are going to a high street lender and you have been trading for less than say three years, it is likely that the traditional lender will not approve your application. Because you don't have a trading background or any relevant trading history.
"So, this is one of the biggest advantages of applying for a Start Up Loan as it instead looks at your business plans and your personal affordability."
The scheme can therefore be relevant to a wide range of people, from entrepreneurs launching their first business to someone changing careers, a new tradesperson or a recent graduate looking to turn an idea into a business.
What are the benefits of a Start Up Loan?
There are several features of the Start Up Loan scheme that can make it useful for new businesses.
A fixed interest rate
The interest rate remains the same throughout the loan term.
Nabeel clarifies that: "During the loan term, the interest rate of the Start Up Loan will stay the same. You don't have to worry about the economic situation or whether the Bank of England (BoE) Base Rate will go up. It gives you added peace of mind."
Knowing what your interest rate will be throughout the loan can make it easier to plan your repayments and build them into your financial forecasts.
It's based on personal affordability
Because a Start Up Loan is a personal loan for business purposes, affordability is an important part of the assessment.
Nabeel underlines this point, saying: “It looks at your affordability. It also doesn't rely on security or assets. The primary focus is whether the loan is affordable based on your current financial situation, such as income and expenses. The secondary aspect is your business viability.”
This is particularly relevant for people who don't have significant business assets or a long trading history. However, it also means applicants need to think carefully about their own finances before taking on borrowing. Nabeel urges clients to remember that: "It is important that if the business fails or goes under, that the owner can still afford the loan as part of a responsible finance approach to lending."
What can you use a Start Up Loan for?
A Start Up Loan can be used for a wide range of legitimate business purposes.
For example, a tradesperson might need finance to purchase a van. A new retailer could need money for stock, while another business might need working capital to fund marketing or recruit its first employees.
As Nabeel puts it: “There are a wide variety of things a Start Up Loan can be used for. The main exception being personal expenses. You cannot buy things for yourself with the loan."
The important question is therefore not simply how much you can borrow, but what the money is going to achieve for your business.
What does First Enterprise look at when assessing an application?
Applying for finance can feel daunting, particularly if you're worried that your business isn't established enough.
At First Enterprise, the assessment looks at two key areas: personal affordability and the fundamentals of the business.
Nabeel discusses these criteria, saying: "There are two main areas. The first being their personal affordability of course, which is the key thing. The second is the business fundamentals. What the full picture looks like. We look at the business plan. We look at cashflow projections, ensuring the business is viable."
That means having a realistic business plan and financial forecast is an important part of the application.
It's also important to be honest about your personal finances.
Nabeel continues: "We don't want to financially overburden you, we want to make sure the affordability is there for you, and for the business."
What mistakes should applicants avoid?
One of the biggest mistakes is underestimating personal expenses.
Remember, you're personally responsible for repaying a Start Up Loan, so your own financial position matters as much as the business idea.
Nabeel's advice is straightforward: "Be honest with yourself when applying. We're not trying to interrogate you, but we need to understand your true financial situation. So, be honest, provide clear information, answer your Business Advisor's questions, and work with them to make the application viable."
It isn't about producing a perfect business plan or telling a lender what you think they want to hear. It's about providing enough accurate information to understand whether the borrowing is affordable and whether the business has a realistic chance of succeeding.
How is First Enterprise's approach different?
For Nabeel, one of the most important parts of the process is the human relationship behind the application, saying: "We don't work with algorithms. We work with you to understand your story and your business. We don't just assess an application on paper, we work alongside the entrepreneur. We try to understand how their business will work in detail."
Applicants are assigned a dedicated Business Advisor who works with them on their business plan and financial forecast before the application reaches the credit assessment stage.
Nabeel goes onto say: "It's all about speaking to the client, trying to understand their business, gathering information, and being fully ready to submit the application for a final decision."
That support can be particularly valuable if you're applying for business finance for the first time.
What is a second Start Up Loan?
Getting your first Start Up Loan isn't necessarily the end of your journey with the scheme.
If your business has started trading and you're looking for additional finance, you may be eligible for a second Start Up Loan.
The important thing is that the additional borrowing needs to have a clear purpose and demonstrate how it will help the business.
Nabeel details how it works, saying: "A second Start Up Loan can be taken out by the applicant when they are looking for additional borrowing, if they can prove how and why this additional funding will help the business to grow."
The additional funding must be for the same business, and you'll need to provide a detailed breakdown of how you intend to use it.
The borrowing must also remain personally affordable.
How could a second Start Up Loan help an established business?
As a business grows, its financial requirements can change.
You might need to employ additional staff, increase your marketing activity or move into larger premises. You might also need additional working capital to manage cash flow while taking advantage of a new opportunity.
A second Start Up Loan could potentially help with these kinds of costs.
It is important to be proactive, and a second Start Up Loan can help with that as Nabeel states: "Rather than waiting for an issue to arise, a second loan can help with working capital, avoiding cashflow delays, and allow the business to seize opportunities and scale up."
The key is planning ahead rather than waiting until cash flow becomes a problem.
How much can you borrow through a second Start Up Loan?
The Start Up Loan programme allows an individual to borrow up to £25,000.
However, if you've already received a Start Up Loan, you don't simply receive another £25,000 on top of your existing borrowing.
Instead, the amount you have already repaid can become available to borrow again, subject to the relevant assessment and eligibility requirements.
Nabeel explains it with an example: "If you applied for a first Start Up Loan and received £25,000 to start your business over the loan term of five years, and you maintained payments. Well, you might slowly reduce the debt remaining to £20,000.
"The £25,000 allowance though remains throughout the lifetime of the loan. So, you could return to the Start Up Loan scheme and apply for a second Start Up Loan for the £5,000 you've now freed up."
In other words, repaying part of your original borrowing can free up some of your individual borrowing allowance for additional finance.
Should you take a second Start Up Loan just because you're eligible?
Not necessarily.
Eligibility doesn't automatically mean additional borrowing is the right decision for your business, as Nabeel says: "We work with the client to decide if the loan would be beneficial at this point in time or not, or whether it's best to wait. Just because you're eligible, doesn't mean it's necessarily viable for your business."
It's important to consider what the additional finance will achieve, whether the business can afford the repayments and how the borrowing fits into your wider business plan.
A second loan should have a purpose rather than simply being available money.
Why might a second Start Up Loan be declined?
As Nabeel explains: "There are three main reasons which a Start Up Loan will be declined. Number one, you are applying for a loan for another business, which isn't allowed under the scheme. It must be for the same business. Number two, it adversely affects your personal affordability. Number three, the additional borrowing must help or positively affect your business. It must align with your business plan and work within your projections."
These considerations are designed to make sure additional borrowing is sustainable for both the business and the individual.
Could a Start Up Loan help your business take its next step? Get in touch
Whether you're preparing to launch your first business or you've already taken your first steps and are looking for additional finance, understanding your options is important.
A Start Up Loan isn't simply about accessing money. It's about making sure the borrowing is affordable, appropriate for your plans, and capable of supporting the business you're trying to build.
And if you've already taken a Start Up Loan, your journey doesn't necessarily stop there. If your business has grown and you can demonstrate a clear need for additional finance, a second Start Up Loan could help you invest in people, premises, marketing, working capital or other opportunities for growth.
If you're considering applying, or you're unsure whether a Start Up Loan or second Start Up Loan is right for your circumstances, speaking to a Business Advisor can help you understand your options before you make a decision.
To get in touch, simply complete the form below or give us a call at 0345 602 7355.
A conversation with our team can help you find out more about how Start Up Loans work, check your eligibility, and explore how finance could support your business ideas going forward.
Please note:
This article is for general information only and does not constitute advice. All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article.
We always recommend that you seek direct financial advice from a relevant expert or professional before making any financial decisions.
First Enterprise is a not-for-profit, FCA-regulated finance provider offering loans from £500 to £250,000 for startups and growing businesses across the UK.
We support businesses that struggle to access mainstream finance, with a focus on underrepresented groups. Funding is delivered through government-backed national and regional programmes.
We offer human-made lending decisions, a dedicated advisor for every applicant, and no penalties for early repayment.
