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Everything you need to know about the Start Up Loans Scheme

Written by Phil Archer on Friday, 14 January 2022. Posted in Finance

Starting a new business is costly, whether it is a stand-alone business or a franchise, the initial start up costs can be large.

Everything you need to know about the Start Up Loans Scheme

Starting a new business is costly, whether it is a stand-alone business or a franchise, the initial start up costs can be large. Often a large proportion of the start-up costs are needed upfront, before any trading can start. This means a franchisee will need a decent amount of capital to get the business off the ground.

However as there is a lack of business history, and not such a large cash deposit, for many new start franchisees, a franchisee may struggle to access many forms of finance. However there are schemes available to help this. This article will look at a scheme the Government launched in 2012 to stimulate entrepreneurship across the UK. Since it’s conception the Start Up Loan Scheme has funded over £779 millions to start up and early stage businesses. 

What are start up loans?

In simple terms, start up loans are Government backed schemes that offers a loan to specifically help new and start up business get off the ground. There are certain criteria that need to be met to be able to apply. There is no application fee, and you will need to have started (in the last 2 years) or going to start a new business in the UK.

The Start Up Loans Company is part of the British Business Bank. The funds are provided by the Department for Business Energy and Industrial Strategy, or BEIS.

Who can get a start up loan?

To be able to apply for the loan, the applicant must be over 18 years of age with the right to live and work in the UK. As the loan is for new start up businesses, you must have imminent plans to start your business, or have a business less than 2 years old. The scheme is designed to help a wide variety of entrepreneurs regardless of sector, background, or where in the UK they are based. 

How much can I borrow, and what about repayments?

Every business is different, which means their lending requirements can vary quite a bit. You can borrow anywhere from £500 to £25,000, with the average being around £7,200. This means you can borrow what you need. What is a huge benefit to the start up loan scheme is that each individual can apply for the full £25,000, so if there are more than one director you can borrow up to £25,000 per director with a maximum of £100,000. 

The loan is an unsecured personal loan, there is a fixed interest rate, which is 6% per year. The loan can be repaid over 1-5 years, and there is no early repayment fee, so if you are in the lucky position to repay early you can. However the loan must be repaid in full as it is not a grant. 

What can I use a start up loan for? 

Now you know if you can get the loan, and how much you can borrow, the question now lies on what to spend the money on. Start up loans can be used for business purposes and can pay for the key expenditure in the early stages of starting the franchise. For example, equipment, premises, marketing, website development, recruitment, and keeping cashflow steady to name a few. 

The purpose of your loan must be outlined in the application and business plan. The cashflow forecast must explain how this will help start or grow the business, it must not be used to pay back debts, pay for qualifications, or to invest in businesses that do not form your ongoing business you took the loan out for. 

What do I need to apply for a start up loan?

As this is a personal loan and the scheme was created to help start up companies, there is no need to provide any business accounts or put forward any assets or guarantors. A credit check will be performed, however a low credit score will not necessarily prevent you from securing the loan. You will need to submit a business plan to show the project stacks up. The application will be considered as a whole and will look at the strength and viability of your business. The affordability of the loan will also be considered, and this will be based on your personal survival budget.

How long does it take to get a start up loan?

The start up loan application should not take that long to complete. Once started you will have 90 days to finish and submit. You will need to get your business plan and financial forecast up to date before you start to ensure a quicker application. Once submitted it is down to the lender to make the decision, and this could take a few weeks. However once a success has been given you can have your money in your bank account pretty quickly. 

This sounds exactly what I need! How do I get started?

Visit https://www.gov.uk/apply-start up-loan for more information and to start the application process. Or contact us to find out more. 

About the Author

Phil Archer

Phil Archer

Phillip Archer is the Funding Manager at award winning accountancy firm d&t who have worked with over 100 franchise networks and over 2,000 franchisees. Previous experience working within the finance industry in some very well known house hold names , paired with his current role, Phil has the tools to help franchisors and franchisees alike. With the variety of services available at d&t Phil has helped franchise brands to get funding for their franchisees and increase franchise efficiency through expert accountancy advice.

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