Start-Up Loans: What Is a Start-Up Loan?
Starting Small, Starting Sensibly
If you are getting a business off the ground, one of the first questions is usually the simplest: where does the money come from? A Start Up Loan is one option many people in the UK look at first. It is a government-backed loan designed for people launching a new business or still in their early trading years.
In this guide we will walk through what it is, what it costs, who can apply and what to watch for. No jargon, just the facts you need to make a calm decision.
Who This Guide Is Written For
This is for anyone in the UK who is thinking about starting a business, or who has been trading for a few years and needs modest funding to grow. It is especially useful if you have been turned down by a high street bank, or if you are not sure whether you are looking at a loan or a grant.
The Basics: What a Start Up Loan Actually Is
A Start Up Loan is a government-funded loan delivered through the Start Up Loans Company, which is backed by the British Business Bank. It is available across the whole of the UK rather than in selected regions, which is part of why many founders see it as a trustworthy first port of call.
Here is the detail that surprises people most: it is technically an unsecured personal loan used for business purposes, not a traditional business loan. You do not need to put up your home or other assets as security, but you personally remain responsible for repaying it.
A Start Up Loan is not a grant. It must be repaid, with interest.
You can borrow from £500 up to £25,000 per applicant, over a term of one to five years. Recent official guidance states a fixed interest rate of 7.5% a year for new applications. You may still see older pages quoting 6%, which reflects a previous rate rather than what is on offer today. There is no application fee and no early repayment fee, so paying it off sooner does not cost you extra.
Successful applicants also receive 12 months of free mentoring and business support alongside the money.
How the Application Process Works
The process starts online and is more guided than most people expect. Rather than filling in a single form and waiting, you are usually paired with a business adviser who helps you prepare the full application, including your business plan and cash flow forecast. That plan matters, because it shows how the funds will be used and whether the numbers stack up.
To be eligible you generally need to live in the UK, be 18 or over and have the right to work in the UK. The scheme is aimed at new businesses and those trading for less than five years. Guidance from some sources notes that eligibility for a first loan has been extended from businesses trading up to 36 months to those trading up to 60 months, so if you were previously told you were too established, it is worth checking the current wording on the official government pages before assuming you are ruled out.
You will also go through a credit check and an affordability assessment. The scheme exists to help people who struggle with mainstream lending, but it still applies responsible lending standards.
If you have co-founders, each partner can apply individually, up to a combined maximum of £100,000 per business.
Why Founders Choose This Route
The main appeal is predictability. A fixed rate over a fixed term means your monthly repayment does not move, which makes early budgeting far easier when income is still uneven. Combine that with no arrangement fee and no penalty for early settlement, and the total cost of borrowing is easy to work out in advance.
The second reason is access. Many brand-new businesses have no trading history, no filed accounts and no assets to offer as security, which makes traditional bank lending difficult. The scheme was designed specifically for would-be business owners in that position.
The third reason is the support. Twelve months of free mentoring is a genuine benefit, and for a first-time founder the guidance on pricing, planning and cash flow can end up being worth as much as the capital. It also helps explain why the scheme is often described as more than simple debt finance.
Worth knowing: HSBC UK reports the average Start Up Loan is around £6,000, well below the £25,000 maximum. Most people use it for focused launch costs, not large-scale investment.
Weighing It Up
| Pros | Cons |
|---|---|
| Fixed interest rate of 7.5% a year, so repayments are predictable | It is a loan, not a grant, and must be repaid in full with interest |
| No application fee and no early repayment fee | You are personally liable, even though the borrowing is for a business |
| Unsecured, so no need to offer your home or assets as security | Restrictions apply on how the money can be used |
| Includes 12 months of free mentoring and business support | Certain sectors are excluded from the scheme entirely |
| Available UK-wide through a government-backed scheme | A credit check and affordability assessment still apply |
| Up to £25,000 per person, or £100,000 per business with multiple founders | Average loan sizes are modest, around £6,000, so it may not cover everything |
Points Worth Pausing On
You cannot use a Start Up Loan for every purpose. Official guidance states the money cannot be used to repay existing debt, to fund training or education, or to support investment opportunities unrelated to the business. Businesses in excluded sectors, including weapons, gambling and pornography, are not eligible at all.
Because it is a personal loan, missed repayments affect your personal credit file, not just the business. That is a meaningful difference from limited company borrowing where liability may sit with the company. Be realistic in your affordability sums and stress-test them against a slow first year.
Finally, check the rate before you apply. Guidance across the internet has not always been updated consistently, and figures such as 6% still appear on older pages. Treat the official GOV.UK and British Business Bank pages as the source of truth for the current rate, eligibility window and permitted uses at the moment you apply.
Other Ways to Fund a New Business
- Business grants - non-repayable funding from local authorities, growth hubs or sector bodies. Highly competitive and often narrowly targeted, but there is nothing to pay back.
- Standard unsecured business loans - offered by banks and specialist lenders. Usually require trading history and accounts, but can provide larger sums than the Start Up Loans cap.
- Secured business lending - borrowing against property or assets, which can unlock lower rates and larger amounts, but places those assets at risk.
- Asset finance or hire purchase - useful if the main need is equipment or vehicles, spreading the cost over the useful life of the asset.
- Invoice finance - releases cash tied up in unpaid customer invoices, suited to businesses already trading with commercial clients.
- Personal loans or 0% purchase credit - can suit very small launch costs, though the liability is entirely personal and rates vary widely.
- Equity investment - angel investors or friends and family taking a stake. No monthly repayments, but you give up a share of ownership and control.
- Bootstrapping - funding growth from early revenue. Slower, but keeps you debt-free and forces commercial discipline.
Common Questions Answered
Is a Start Up Loan a grant? No. It is an unsecured personal loan used for business purposes, and it must be repaid with interest. Grants do not need to be repaid, but they are typically harder to obtain and more narrowly targeted.
What interest rate will I pay? Recent official guidance states a fixed rate of 7.5% a year for new applications. Older references to 6% reflect a previous rate. Always confirm the current figure on the official scheme pages before applying.
How much can I borrow? Between £500 and £25,000 per applicant, repaid over one to five years. Where a business has multiple partners, each can apply individually up to a combined total of £100,000 per business.
Do I need a good credit score? You will need to pass a credit check and an affordability assessment. The scheme is designed for people who may not qualify for mainstream lending, but it is not automatic approval, and a poor credit history can still affect the outcome.
Can I apply if I have already been trading? Yes, if your business is still early stage. Official guidance emphasises trading for less than five years, and other guidance points to an extension of first-loan eligibility from 36 to 60 months of trading. Check the latest published wording for your situation.
Is there a penalty for repaying early? No. There is no application fee and no early repayment fee, so settling early simply reduces the interest you pay.
Do I have to use the mentoring? It is offered free for the first 12 months and is optional, but many first-time founders find it one of the most valuable parts of the package.
Where Kandoo Fits In
Kandoo is a UK finance broker, so our role is to help you see the whole picture rather than one product. If a Start Up Loan is not the right fit, or it only covers part of what you need, we can talk you through other routes and match you with lenders suited to your circumstances. We explain the costs clearly, compare options side by side, and never push you towards borrowing that does not genuinely work for you.
Important Information
This article is general information only and is not financial advice. Start Up Loans scheme rules, interest rates and eligibility criteria can change, and figures quoted here reflect published guidance at the time of writing. Always check the current details on GOV.UK or the British Business Bank before applying. Borrowing carries risk, and you remain personally liable for repayments. Consider independent advice if you are unsure.
Buy now, pay monthly
Buy now, pay monthly