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A Guide to Startup Loans & Business Financing



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A Guide to Startup Loans & Business Financing
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While the saying ‘it takes money to make money’ may sound like a cliché, there’s no denying that starting your own business can be expensive. But you shouldn’t let that stop you from following your dream. If you’re looking for ways to finance your new venture, there are loans to start a business to help you manage the cost.

Here, we’ll explain how to apply for a loan to start a business and the different financing options available to alleviate financial worries and pursue your business goals. 

Financing your business

Have a business idea that’s sure to take the market by storm? The next step is making sure you have the money to get the ball rolling. 

Formulating a financial plan can help you visualise exactly what money you have to work with, and if your business idea is really viable. It’ll cover all the costs of your new company and what you’ll need to finance them. A financial plan is also a useful tool when pitching to investors or when applying for a business loan.

Here are some of the components of a financial plan:

  • Your investment budget: Here, you’ll list the investments you need to start your business and those that can wait until further down the road. This should give you an idea of how much money you’ll need to get your business started.

  • Your financial budget: How are you planning to finance your new company? Will you apply for a Start Up Loan from the government? Are you borrowing money from a family member? You have several options available to you which we’ll cover later on.

  • Your operating budget: Next you’ll need to estimate what your business’ turnover will be. You’ll need to analyse the costs of keeping your business running against the money you’ll make to ensure you’re making a profit. 

  • Your cash flow budget: Your income and expenses are likely to go up and down throughout the year. Here, you’ll put together a cash flow forecast which includes all income and expenditure per month. This can show you where you’ll have surplus money available and when you’ll need extra funds so you’re prepared for all eventualities. Many banks will also ask to see your cash flow forecast before approving you for a business loan.

Startup loans vs. business loans

When it comes to loans to start a business, there are two different routes you can take. You can apply for a business loan through a bank, or apply for a government-backed Start Up Loan. Let’s compare the two so you can decide which may suit you best.

Government-backed Start Up Loan

Did you know you can apply for financial support from the government to kick start your business? The government-backed Start Up Loan can lend you anything from £500 to £25,000 subject to acceptance. Unlike many business loans, the government’s Start Up Loan is an unsecured personal loan meaning your borrowing won’t be secured to a valuable asset like your home or car. But like other loans, you’ll need to pass a credit check. Benefits of this loan include free support to help you put together your business plan, and up to 12 months of free mentoring - ideal if you’re just starting out. 

To apply for the Start Up Loan you’ll need to be living in the UK, be aged 18 or over and have a UK-based business that’s been trading for less than 36 months, or plan to start one. 

It’s important to note that you will be charged for your borrowing - this government-backed loan charges a fixed interest rate of 6% per year. You’ll need to repay the loan over a period of one to five years, and you can choose to repay it early without any early repayment fees.

Business loans

Taking out a business loan is another option when it comes to financing your new business. They work in a similar way to other types of loans - you apply through a bank and will need to repay the amount through regular repayments.

The amount you’ll be allowed to borrow will usually depend on your credit history and the bank’s specific borrowing limits. Some may give you a personal borrowing limit based on your credit rating. With this in mind, making sure your credit score is in good shape beforehand can give your application the boost it needs to be approved. Once approved, your business will be lent the money and you’ll start making regular repayments, including interest, over a set amount of time. 

Most banks will ask the following from you before approving your loan:

  • You’re aged 18 or above

  • You need the money for your business, not for personal reasons

  • Proof that your business can make the repayments

  • Details of any other business loans or finance you may have

  • A Guarantee if you’re a limited company or Limited Liability Partnership

  • Permission to carry out a credit check

Online lenders vs. traditional lenders

If you’re looking to borrow cash to get your business off the ground, you’ll need to decide whether to borrow from a private online lender, or a traditional lender like a bank. 

The best option for you will depend on your individual circumstances. If you don’t have much of a credit history or have struggled with bad credit in the past, you may find it easier to be approved by an online lender. One of the biggest advantages of an online lender is the convenience - they typically offer a fast application process which can all be completed online, rather than needing to visit a branch. They’re also known to offer a quick funding process - but exactly how long it will take to receive your money will be down to the lender. Online lenders may also offer you more flexible repayment terms.

Alternatively, you may prefer to borrow from a traditional lender like a high street bank. If you have a strong credit score and would prefer to borrow from a well established bank or credit union, going with a traditional lender may suit you best. You may choose to take out a business loan with the bank you already hold a current account with, as they’re familiar to you and you have a history with them. Traditional lenders like high street banks may also offer you a lower interest rate than online lenders, so it’s worth shopping around to get the best rate on your borrowing. 


If you’d prefer to avoid taking out a business loan, there are other routes you can take. If you’re looking for some financial support to get your business moving, you could consider crowdfunding. As the name may suggest, crowdfunding is where a ‘crowd’ funds a project, such as your new business. To raise the money you need, you’ll need to gain the attention of your potential investors and prove that your new business is worth their investment. 

There are a few types of crowdfunding for you to consider. With donation-based funding, your contributors will give money without receiving anything in return. Whereas with equity funding, backers will receive shares of your business in exchange for their funds. For debt-based funding, contributors are repaid with interest. If you choose reward-based funding, your donors will receive tokens, products or services as a reward for their donation. 

How do I get a loan?

Before you go ahead and apply for a loan, it may be a good idea to weigh up whether you definitely need one. Like all types of borrowing, taking out a loan is a big financial decision. Make sure any borrowing you take on is affordable and that you’ll be able to pay it back. If you’ve struggled with debt in the past, you may want to consider other funding options to avoid damage to your credit rating. 

If you’ve decided a business loan is the right choice for you, how you go about applying for a loan will depend on which route you choose. If you decide to apply for the government-backed Start Up Loan, you can do so through the British Business Bank’s website. They’ll ask you a few simple questions about you and your new business to make sure you’re eligible for borrowing. 

If you’ve decided to apply for a business loan through a bank or credit union, here are the steps you’ll need to take: 

  1. Decide how much you want to borrow: While a lender may offer you £20,000 for example, this doesn’t mean you need to borrow that amount. Work out exactly how much money you need to borrow and that you’ll be able to afford the repayments.

  2. Choose your term: A loan’s term is the period of time you’ll be repaying your loan. You may decide a year is long enough to pay back what you owe, or you may prefer to spread the cost over five years. Just remember the longer you take to pay back the loan, the more interest you’ll be charged.

  3. Provide your details: Your lender will ask for your personal details and details of your new business. Make sure you have all this information to hand so the application process is smooth sailing.

  4. Choose your loan provider: Decide which bank, credit union or other lender you want to borrow from. Make sure to compare lenders - they’ll offer different interest rates and deals.

  5. You’ll receive your funds: Once your loan has been approved, you’ll receive your funds. How long it will take to receive the loan will depend on your lender, so make sure to check this beforehand. 

Get your business up and running in no time

If starting your own company has always been on your bucket list, you shouldn’t let business financing get in your way. 

Starting your own business doesn’t need to feel complicated. Why not let us take care of the hard work? Our company formation service can take charge of the tricky side of things, so you can focus on the most important thing - your exciting new start. Apply to form your company with SUAZ today.

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