July 17, 2018 0

Different ways to secure UK Business Startup Loans for your Business

Different ways to secure UK Business Startup Loans for your Business

Individuals may have a brilliant business concept at hand, and may also have completed all the required groundwork for the business, but it is never easy to secure funds when a business is just starting out. Getting the monetary support is the area where most of the budding UK entrepreneurs face the maximum challenges; be it funding or Business Startup Loans.

Due to limited resources and strict budgets, it is crucial for start-ups to maximize their business profits by making the best use of the available resources and capital. Several start-ups are on the lookout for alternative funding options that can give wings to their business.

This article explores the different ways in which startups can secure a loan or financing for their growing business.

Start-up Loans

 For new businesses that have been operating for less than 2 years, government-backed start-up loans are available. This start-up funding is more like an unsecured personal loan that start-up businesses can use to fund their initial capital requirements. Start-up loans that are backed by the government are charged at an annual interest rate of 6%, and they can be repaid in 1—5 years. Moreover, these loans do not incur any application and repayment fee.

Bank Overdrafts

 A bank overdraft is a quick and flexible funding option that start-ups can use in their beginning years to strengthen their business foundation. Overdrafts work on the simple concept: dip into the account during the initial struggling years, and repay when the business has gained ground. Usually, in the case of overdrafts, banks only charge interest on the overdrawn value/amount. Moreover, there are many banks that offer overdraft options that are specifically tailored for new businesses. For instance, the NatWest bank offers account overdrafts that can reach up to £500 and with no set up charges during the first 12 months for any start-up business. However, it should be remembered that the interest rate charged on account overdrafts are usually higher than the standard base rates, and the overdrafts have to be repaid on-demand by the business owners.

Business Cash Advance

 Business cash advance is an alternative financing option that startups can use to raise capital funding for their business needs. This mode of financing allows start-up owners to receive an upfront cash advance that can be repaid as and when the customers purchase goods and services via card transactions. The repayment for cash advances is usually fixed at a pre-decided rate of interest for every transaction, and it is typically around 20% of the value of each card payment. Business cash advances are convenient for start-up businesses, as they are allotted without the need for any collateral, and they do not entail any fixed monthly payments—the business pays the financier only when the customers pay the business. Though a business cash advance is easier to arrange than a bank loan, financiers have stringent requirements that must be fulfilled to qualify for a cash advance. For instance, start-ups should be capable of processing card payments, and they must be in business for at least a certain defined period (varies from financier to financier), among other requirements.

Asset-based Loans

 Asset-based loans work on the similar lines of mortgage loans. Start-up owners loan against their existing assets, and if the repayment terms are defaulted on, the financier seizes the asset to pay off the loan. Assets such as properties, inventory, equipment and even the accounts receivable can be utilised as the collateral for borrowing. Asset-based loans offer a much needed respite to small businesses that face capital crunch during their initial years, but the interest rates on these loans are higher than the traditional loans. Moreover, in some cases, lenders tend to include extra auditing and due diligence charges to the overall cost of the loan.

Also Read: Finance guide for growing UK startups

Asset Finance

During their initial years, start-ups may have to make significant investments on assets, such as computer systems, software, machinery and equipment, which may be unaffordable, given their newly set up business. Asset finance helps startups break down the large investments required for buying new assets into small, bite-sized payments that are to be made on a monthly basis. This type of financing makes costly assets accessible to new businesses at an affordable rate but without impacting the cash flow of the company. Asset finance is usually conducted via leasing and hire purchase. In leasing, the assets are used for a fixed, decided contract period but are never owned by the start-up, whereas in hire purchase, at the end of the contract period, the start-up owner becomes the owner of the hired assets.

Invoice Factoring

 Invoice factoring is a speedy way of receiving cash while waiting for customers and clients to make payments. In invoice factoring, start-ups that are in dire need of capital can sell off their unpaid invoices, i.e. the accounts receivables, to a financier. The financier then pays the startup a large chunk of the unpaid invoices and thereafter, itself collects the payment from the customers/clients. Post collection, the financier repays the rest of the amount (the reserve) back to the start-up after deducting its service charge.

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Angel Investors

Start-ups with innovative business concepts may impress an angel investor who would be interested in making capital investments in their business in exchange for some equity shares. Angel investors are entrepreneurs with extensive industry experience and value, and start-ups can leverage their expertise and business networks to gain a strong starting ground. Angels make investments via multiple rounds of payment, and they expect a healthy return on the investment made. As opposed to what is believed, finding an angle investor is far less intimidating than perceived. If start-ups have a tight pitch and can predict realistic growth projections for their business, seeking a relevant angel investor would be a smart move.


In the past few years, crowdfunding has become the buzzword in the start-up arena. In crowdfunding, start-ups seek funding from interested stakeholders by pooling investments through crowdfunding sites. In equity crowdfunding, shareholders come together to pool money for a business cause or venture by investing a little in return for a share in the business. Since there is no cap on how little or much can be invested, crowdfunding has become a suitable financing tool for start-ups, as these businesses do not have an extensive financial background to showcase and are essentially looking for an initial kick-start.               

Peer-to-Peer Lending

During their starting years, start-ups can resort to peer-to-peer lending platforms that will connect them with private lenders. These private lenders have the option of viewing and selecting which loans they’d prefer financing. Peer-to-peer loans are more popular than the traditional bank loans, as they offer start-up businesses the flexibility required in terms of cost-effectiveness via reduced interest rates and loan application fee waiver, among others. Peer-to-peer lending is also called person-to-person leading or social lending, and it helps build trust and camaraderie in the community.           

Micro Loans

Microloans are apt for start-ups that need only a small sum of money for specific tasks. These microloans can be customised as per the needs of the business and are usually accompanied by generous repayment tenures.

Community Schemes

Startups that have been denied funding from banks and financial creditors, can resort to community financing schemes. There are several community development finance initiatives that startup businesses can select to seek help with activities ranging from working capital investment to equipment purchase. However, community schemes are usually known to have very restrictive clauses. For instance, the business seeking financing has to be either a social enterprise or a micro-business. Moreover, the startup, to qualify for the scheme, should be located in a disadvantaged area.

Family Loans

One of the most traditional means of financing, family loans can come in handy if families, relatives and friends have enough money to spare and provide the funding required to set up a new business. Family loans are expected to be hassle-free, as they are provided on the basis of trust, and family members, as opposed to banks and financiers, charge a lower interest rate, or none at all. Moreover, there wouldn’t, usually, be any need for collateral when dealing with family members. However, there are several opinions on mixing business and family; therefore, startup owners should make an informed decision before opting for family funds.

Here are few tips to keep in mind when you apply for a start-up loan:

  1. A good credit is very important. Ensure you don’t have any foreclosures, late payments or bankruptcies.
  2. Keep your data up-to-date. Having all your tax-related, financial and accounting documents in order will help in a smooth process.
  3. Understand the types of loans you qualify for and choose carefully the one you need to apply for. If you just need a merchant advance cash – go for it rather than the SBA loan will take detailed processing up to 90 days.
  4. Your consistent cash flows are important. Keep data clear on tax returns and debts.


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