Startup Loans - How Much Money Can I Get For My Business?
You will learn everything about:
- What is a startup loan?
- Is a startup loan and a business loan the same?
- How much money can I get with a startup loan?
- Can 2 partners apply for a startup loan?
- How much does a startup loan cost?
- Who can get a startup loan?
- Is your business eligible?
- Is a startup loan a grant?
- How can I apply for a startup loan?
- Can I withdraw my startup loan only when I need it to save on interest repayment?
- Can I use the startup loan if I am buying an existing business?
- Are franchise businesses eligible to apply for a startup loan?
- Can I have more than 1 startup loan?
- Do I have to pay back a startup loan?
Getting funding for your startup is not just about finding the right investor. There are lots of other tools available to founders and owners such as grants, r&d tax and commercial mortgages.
Startup Loans, from the British Business Bank, is one of these very useful financing solutions.
What is a startup loan?
A startup loan is a government-backed personal loan that comes with 12 months of free mentoring and exclusive business offers to help you succeed. It's unsecured, so you don't need to put up any assets or guarantors to apply.
Is a startup loan and a business loan the same?
It’s a bit confusing. A Start Up Loan is a loan for your business, but it is not a typical business loan. It is capped and unsecured and is also focused on helping your business grow. It is not all about the money like a bank or another lending organisation.
How much money can I get with a startup loan?
A founder/owner can borrow up to £25,000 with the average loan amount being £7,200.
Can 2 partners apply for a startup loan?
All owners and partners in a business can individually apply for up to £25,000 each, with a total of £100,000 available per business.
In this case, the applying applicant must have a 50% equity share in the business.
How much does a startup loan cost?
The startup loan is a fixed interest rate of 6% per year that you can repay over a term of 1-5 years.
If you fully repay your loan at the end of year 3, a £25,000 will have cost you £2,314.98.
Who can get a startup loan?
These are the basic criterias you will need to comply with to get access to a startup loan.
Are you eligible?
- 18 years of age or older
- UK resident
- You have the right to work in the UK
- You are unable to secure finance from other sources (self-declaration)
Is your business eligible?
- Business less than 36 months
- Business is UK based
- Business is not one of the excluded types: Weapons, Chemical manufacture, Pornography, Drugs, Illegal activities, Banking & money transfer service, and other FCA regulated activities, Private investigators that do not hold the appropriate licence, Gambling and betting activities, Property investment, Agents for third parties, where a third party earns the majority of the revenue or you would only be earning a commission.
- Charities
Purpose of the loan
You cannot use the startup loan to fund debt repayment, training and investment opportunities that do not form part of an on-going sustainable business.
Credit check and loan assessment
As well as these basic eligibility criterias, the British business bank will also undertake a series of personal credit checks with a Credit Reference Agency as well as Fraud Prevention Agencies. This is to make sure that both your personal information and bank information is correct.
The strength of your application will be based on your Business plan, cash flow forecast and your Personal Survival Budget which is a spreadsheet type document that shows that you are not only on top of your business finance but your personal life too.
Is a startup loan a grant?
A startup loan is not a grant.The application process can seem similar and the loan is also backed by the government, however like all loans, you will have to pay it back.
How can I apply for a startup loan?
Getting your startup loan is a 3 step process:
Step 1 - Eligibility check and register
Step 2 - Complete the application form
- How much are you seeking and how will you use the loan?
- Personal credit check
- Submit business plan, cash flow forecast and personal survival budget
You have a 90-day window to complete your application.
The British Business Bank has teamed up with “delivery partners”. These partners act like advisors and will help you get to the next stage.
Example of delivery partners:
Virgin Startup: https://www.virginstartup.org/start-up-loans
Transmit Startups: https://www.transmitstartups.co.uk/.
Step 3 - Finalise business documents.
Nearly there. You will work with your business adviser to prepare your documents and make sure they are ready for assessment.
Once you are accepted, you will also get 12 months of free post-loan support.
Start here:
https://www.gov.uk/apply-start-up-loan
https://apply.startuploans.co.uk/s/register
Can I withdraw my startup loan only when I need it to save on interest repayment?
Yes, your loan can be tranched.
The word “tranch” is French for slice. It basically means dividing something into small pieces, just as you would a cake. And you can do this with your startup loan with a tranched loan.
This will allow you to only borrow the money that you actually need and therefore only start paying back the interest on the borrowed funds.
The interest rates will be fixed at 6%, so whatever happens you will know exactly what you have to repay.
Can I use the startup loan if I am buying an existing business?
The startup loan is a personal loan related to the owner.
So, if you haven’t personally owned a business for more than 3 years you are eligible for a startup loan. And this is true even if the business you are buying is older than 3 years.
Are franchise businesses eligible to apply for a startup loan?
Yes, a franchise is just like any other business you are looking to purchase with your loan.
Actually, the company offering you the franchise (franchisor) will often save you a lot of time by helping with the necessary documents to get the loan: cash flow projects, business plan.
However, you will probably need more money than £25,000 to buy a franchise. So before you start your franchise loan hunt, make sure you have done proper research on all your franchise costs.
Can I have more than 1 startup loan?
Launching a business takes money but very often you will need more funds to continue growing.
If this happens, you can re-apply for a second startup loan. The application is very similar to your first loan, however eligibility will also take into consideration what happened with the first loan. So make sure you have very clear accounting from day one.
Do I have to pay back a startup loan?
This is quite an important question.
We mentioned earlier that a startup loan is not a grant. So, yes, you do have to pay it back. But also this is a personal loan. It means that although the loan is unsecured i.e. you don’t have to show any assets to be eligible, you will have to personally pay it back. Even if your startup goes out of business.
If loan repayments are missed, then standard market practices for debt recovery will kick in.
