Finance Workshop

How to get a government start up loan

More than £260m in government loans has been granted to small businesses since 2012. But many founders are intimidated by the application process.

21 Feb 2017

What do the founders of Pip and Nut, City Pantry and Electric Star Pubs have in common?

They’ve each borrowed money through the government’s startup loan scheme to get their ventures off the ground.

Many founders, however, are sceptical of government loans, believing the process to be convoluted, time-consuming and unlikely to yield a positive result.

The government’s business department issued 7,365 startup loans in 2016, each decided on the back of a face-to-face meeting.

Jeff Gilbert, adviser at the London Small Business Centre, says a prospective business needs to demonstrate it has a grip of its accounts to land the loan. ‘We get a lot of people who are creative but not great with finances,’ he explains. ‘Not understanding the difference between profit and loss and cash flow [for example].’

Businesses undertake the loan application cautiously, but Gilbert insists the process is worth the effort (and is also a useful crash course in the basics of managing business finances).

The lowdown on the government’s loans

Who can apply?

Any UK business, two years old or younger. Businesses in areas such as property investment, money transfer and weapons sales aren’t allowed.

How do I apply?

Provide a one-page business summary, three months’ worth of bank statements, and a cashflow forecast. A credit check is followed by a face-to-face meeting to agree the size of the loan and how it will be spent.

How much can I borrow?

Up to £25,000 as an individual. Companies with four directors or more can borrow up to £100,000.

What are the fees?

Interest is charged at 6% per year for a period of up to five years.

What if I can’t pay it back?

It’s possible to negotiate a payment ‘holiday’, but as the loan is made against individuals, not businesses, a court summons could follow to settle the debt.