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.

What Is A Start Up Loan?

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.

Top 10 UK Start Up And Loan Providers For 2020

  • Government-backed loan of between £500 and £25,000 for start ups.
  • Unsecured, personal loan (unlike the Government Business Loan).
  • Fixed interest rate of 6% per annum.
  • Repay over 1 to 5 years.
  • No application or early repayment fees.
  • Must be a UK-based business with under 24 months of trading history.
The UK government is providing young UK businesses with the chance of repayable funding. The loan is therefore targeted only at companies that have been trading for under two years. On top of the loan, the government will organise free mentoring for the company for 12 months which can really make a difference, particularly for those who lack trading experience. Additionally, the government will offer other resources for free, such as templates and guides which could help you gain funding in the future. The greatest benefit of this loan is that it is publicly funded. This means that no one is trying to catch you out — all loans are absolutely transparent, fair and easy to understand. Additionally, there is zero confusion around fees or the interest rate, as it will remain the same at 6%. What’s more, one of the biggest hurdles to gaining funding is usually the application process. But here, the lender itself supports you in completing the application. A great option for new businesses.
  • Borrow a maximum of two months revenue, up to £500,000 (which can be topped up after successful repayments).
  • Flexible repayments, with a borrowing term between 1 and 24 months (or 48 months for secured loans).
  • Rates start as low as 1.5% per month.
  • No hidden fees or penalties for early repayment.
  • Support and guidance from a dedicated relationship manager.
  • Must have at least 6 months trading history with a minimum turnover of £5,000.

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.

  • Borrow between £25,000 and £1.2 million for your business.
  • Decide on a loan term between 1 and 10 years.
  • UK government-backed loan.
  • Must have an annual turnover of below £41 million.

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.

  • Borrow a loan up to the value of £50,000.
  • Very little in terms of eligibility criteria: no minimum trading history or annual turnover listed on their site (although eligibility may be decided on a case-by-case basis).
  • Flexible repayment options.
  • No monthly or annual fees.
  • Fill in a 2-minute application and receive your decision very shortly after.
  • It’s possible to receive funds as quickly as 10 minutes after applying.

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.

  • Borrow between £500 and £25,000 per co-founder.
  • Borrow for a term between 1 and 5 years at a fixed rate of 6% per year.
  • Dedicated business guidance and helpline.
  • Have an experienced mentor that will work with you business.
  • Have access to exclusive offers within the Virgin Group.
  • The business must either be not yet trading or has been trading under two years.

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.

  • Borrow between £10,000 and £100,000 for your start up company, with “all circumstances considered”.
  • APR is available on request.
  • Make flexible repayments each working day, meaning you can pay more when cash flow is strong.
  • Any purpose for the loan is allowed.
  • One-off arrangement fee when you take out your loan.
  • No charge for early repayments.
  • All circumstances are considered on a case-by-case basis.

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.

  • Borrow between £1,000 and £50,000 for your start up company.
  • A competitive fixed 9.3% APR.
  • No arrangement fee when the loan is below £25,000.
  • Choose a term between 1 and 10 years.
  • Fixed monthly repayments with no early repayment fees.

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.

  • Borrow between £1,000 and £50,000.
  • Repayment terms can stretch between 1 and 10 years.
  • No arrangement or repayment fees.
  • Director personal guarantees may be required.
  • No specific trading history required and RBS has recently waived the need for businesses to have a minimum turnover of £2 million to apply.

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%.

  • Borrow between £10,000 and £150,000 across 12 to 60 months.
  • Apply in 10 minutes and receive a final decision within 48 hours.
  • No charge for lump sum repayments or early repayments.
  • The company must have at least 18 months trading history.

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.

  • Borrow between £5,000 and £100,000.
  • Fixed cost with no APR involved.
  • Very clear and fast process to funding.
  • Flexible minimum lending criteria; only 3 months of trading history necessary.
  • At least £4,000 monthly revenue is required.

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.

FAQs

Being a home based business will not exclude you from being eligible for most business loans. Having an office or not is not important to most lenders, but having a UK address certainly is.
Initially, the answer to this question is yes — you can use business loans to pay operating expenses. However, when applying for a loan, you may be asked where you intend to spend the funding. Some banks may not lend to those who need the money for cash flow; favouring those who will invest the capital in growth projects.

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.

Other Types Of Finance Available To New Businesses And Start Ups:

Short Term Business Finance Providers

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

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.

Peer to Peer Lending

Peer to peer finance is a form of decentralised lending. Instead of receiving your loan from one entity (e.g. a bank or online lender), you typically receive it from an unknown lender/investor. This is organised by a middleman, who matches lenders with borrowers (based on risk profile and such). Peer to peer lending has grown exponentially over the last decade, and is proving to be real competition for even alternative loan providers.

CrowdFunding

Crowdfunding is a way to receive funding from a large amount of people that typically contribute small amounts. In return, they are usually offered first access to a start up’s goods or service. This is a great method of raising funds, particularly for innovative companies that have the potential to gain buzzworthy attention.

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