You may be surprised to learn that only 36% of the UK’s small businesses use external financing. And this number is down from 44%, just 6 years ago.
Why? Quite possibly, it’s because of the UK’s current political landscape.
Brexit uncertainty has unfairly knocked business confidence. Today, many UK businesses are slowing growth just to stay debt-free. But with the strength of the pound bouncing back, start up loans are not to be feared. In fact, they are a great way for UK-based SMEs to fund future endeavours.
If you’re a young business looking to scale, finding the right financing options to support your growth can be tough. After all, acceleration usually takes significant funding, and if you’re relying on retained profits, this finance can be hard or slow to come by.
That’s where a start up loan comes in. By taking an injection of working capital from an external funder, a start up or young SME can invest in the operations and activities which will help grow their business. Plus, as long as a start up can evidence positive cash flow (or at least the potential for one), there are plenty of loan options, from traditional and alternative lenders.
Below are a list of 10 providers that could help supply a young start up with the building blocks of its future.
Fleximize is a UK-based company which aim to support small, slightly less established businesses in getting finance. Understanding how difficult it can be to become eligible for a loan, Fleximize make the application process very straightforward. In fact, it’s possible to receive funding just 48 hours after applying.
This level of service shows a strong understanding of the customer — most start ups encounter urgent problems that need urgent solutions. Fleximize is also very welcoming in its eligibility, as only 6 months of trading experience would likely block a start up from applying for most other small business loans on the market.
APR quotes are very specific to a company’s situation, but with this comes great flexibility in both the application process and repayments (and there’s no early repayment penalties). As a start up grows and proves itself regarding on-time repayments, more money can be secured and lengthier repayment terms can be negotiated.
Clydesdale is a huge commercial bank and is in the same group that owns Yorkshire Bank. An added benefit of gaining funding from such a large high-street bank is that you can attend physical meetings and visit a branch when necessary. This is of course impossible with online lenders, in which you rely on a hotline number to be active.
This loan is a little different from the rest, as it is backed by the UK government. This means that 75% of the loan is guaranteed by the Department of Business, Energy and Industrial Strategy. As a result, there is a 2% government premium on the outstanding balance of the loan (plus an arrangement fee). This funding is available to new start ups and may even be available if you are only at the stage of having a business proposition but ‘have no security or lack sufficient security’. Businesses in public administration, national defence, insurance, coal and social security are excluded.
Capital on Tap has lent a staggering £1 billion to small businesses in the UK. This is quite an impressive amount for an alternative lender, and goes some way to proving its credibility.
Capital on Tap takes fast applications to a whole new level with a 2 minute form to fill out, an instant decision, and the possibility of receiving the funding after just 10 minutes. With over 65,000 businesses funded, Capital on Tap has positioned itself as a backer of new ideas and provides strong customer service. Despite this, its team remains relatively small, so it’s no surprise that it can empathise with start ups are really in need of.
Being approved of a Virgin Start Up Loan is worth more than the cash amount. Virgin understands that this money can add more value than tiding you over — it’s about growing and scaling your company. This means that along with the capital, Virgin provides unprecedented levels of support for a lender, from mentors to a business helpline. There are even opportunities to meet specialists and receive promotional and marketing opportunities at Virgin StartUp (being featured on its website, for example).
The key unique selling point for this loan is that it is exclusively for fresh, new businesses. In fact, you don’t even need to have started trading yet. And it isn’t like Virgin are handing out insignificant loan amounts, either, as its average loan is £10,000.
ClearFunder prides itself on taking every business into account, instead of having fixed requirements. All it asks is that the private company is based in England or Wales, and is not involved in insolvency or redundancy arrangements. Even those with very poor credit history can be considered, but will of course have to prove that they can meet the repayments.
Lloyds is a big hitter when it comes to commercial banks, and its size makes this competitive 9.3% APR possible.
Problem is: it will probably be difficult for a young start up to acquire this loan, despite the set-in-stone requirements being minimal. True, there is no specific trading history required. But, as with a lot of other big banks, it will most likely be a hindrance if the company is under 2 years old.
That being said, if you’ve got the time for what is often a lengthy application, it might be worth a shot. After all, being approved will mean benefitting from one of the best small business loans on the market.
RBS is another big commercial bank that has succeeded in creating a financial product that caters to start ups.
RBS’s Small Business Loan is very accessible to start ups, as there’s no minimum trading history stated in the T&Cs. It also appears that RBS has recently relaxed its turnover criteria; where once a turnover of £2 million or less was required to use a Small Business Loan, updated information on its website suggests this is no longer the case.
On one hand, it’s great that RBS has business finance product which is open to so many. However, this accessibility is reflected in the relatively small amount of capital on offer. Nevertheless, up to £50,000 could be enough for many start ups to kick start their growth.
Additionally, with this loan you can benefit from the kind of APR that large banks are able to offer — around 51% of its customers are expected to receive an APR of 12.49%.
Yorkshire Bank is offering a fantastic loan, as it strikes a perfect combination between the alternative lenders and traditional lenders — getting the best of both worlds.
Yorkshire Bank is a large, northern bank and is a subsidiary of Clydesdale Bank. It is currently offering a low APR loan with transparent and simple repayments. This is what large banks do best, but Yorkshire is delivering it with a twist. This specific loan can be applied for online in just 10 minutes, and you will get a decision within 48 hours — just like an alternative lender.
The biggest drawback is the large £5 million annual turnover required, which may rule many young SMEs and start ups out.
CubeFunder is a UK-based alternative business lender, which focuses on providing a unique level of service.
CubeFunder lays out the application process into four clear steps, and aims to have much fewer rules and charges. Instead, CubeFunder offers substantial loans to very young start ups, with a minimum monthly revenue of £4,000+ and an acceptance of bad credit. The application process takes just a few days, and you will have to repay a fixed cost instead of an APR — this makes it difficult to pin down an estimate of what it will cost you, however.
Many loans require you to be a limited company, so loans from such companies will certainly want to fund the money into a business account. Some other loans such as Amigo loans, however, are personal loans (but intended for business use), so you may get away with having a personal current account.
Most start up loans from alternative lenders are unsecured loans. This means that you will not need to put forward collateral. However, secured loans are certainly available, and much preferred by large commercial banks. Secured loans will also bargain you a better APR.
Large commercial bank loans have a very high standard of creditworthiness, so a bad credit rating will likely rule you out of these loans. But this is why alternative lenders exist — to cater to borrowers with poor credit, and as a result, charge more in interest.
Short term business financing is similar to gaining a regular business loan, but with different reasons and repayments underpinning it.
Instead of growth projects — like investing in automation — short term business finance centres around working capital. Thus, funds are borrowed for under a year (but often much less) and are usually intended to just smooth cash flow. A prime example of this is when seasonal businesses need to see themselves into their next busy period (i.e. a Ski rental store closing during summer).
Government grants are usually awarded to start ups that can prove themselves to be innovative and contribute substantially and positively towards the economy. As a result, the government hands out funding which does not have to be paid back. These are more difficult to obtain, but once approved, it is essentially risk-free financing.
Copyright © ALL RIGHTS RESERVED 2021
Merchant Savvy is a division of VUBO Ltd (Company Number 09017066).
Address: Spaces, 9 Greyfriars Rd, Reading, RG1 1NU.