Start up loans: How to fund your new small business
Getting a start up loan can fuel your business growth and cover essential expenses. Learn how to secure funding.
Written by Jotika Teli—Certified Public Accountant with 24 years of experience. Read Jotika's full bio
Published Sunday 5 October 2025
Table of contents
Key takeaways
• Apply for a government-backed Start Up Loan if you need £500-£25,000 to launch your business, as it offers a fixed 6% interest rate, requires no security, and includes 12 months of free mentoring support.
• Prepare a comprehensive business plan with detailed cash flow projections and a clear repayment schedule before applying, as lenders assess your ability to repay based on these financial forecasts.
• Consider alternative financing options like investors, crowdfunding, or peer-to-peer lending if traditional loans are not suitable, as each offers different benefits such as mentorship, market validation, or faster approval times.
• Track your loan repayments and maintain accurate financial records from day one using accounting software to monitor cash flow and stay on top of your loan obligations while growing your business.
What is a start up loan?
A start up loan is a government-backed personal loan available to individuals looking to start or grow a business in the UK. It's designed for new businesses (trading for less than three years) that might struggle to get funding from traditional lenders, and the scheme has a strong track record of supporting diverse entrepreneurs, with 40 percent going to women and one in five to people from Black, Asian and other ethnic minority backgrounds.
Unlike a typical business loan, you do not need to provide assets as security for a Start Up Loan. You also get 12 months of free mentoring and business support.
Start up loan eligibility requirements
To apply for a Start up loan, make sure you meet these criteria:
- Be 18 years of age or older
- Live in the UK
- Be starting a new business or have been trading for less than 36 months
Your business must be based in the UK. You will need to pass a credit check and show a business plan that proves your idea is viable and you can afford the repayments.
How much can you borrow with a start up loan?
You can apply for a fixed-rate loan between £500 and £25,000. The final amount you receive will depend on your business plan and your ability to repay the loan. Only borrow what you need and can afford to pay back. All owners or partners in a business can individually apply for up to £25,000, with a maximum of £100,000 per business.
Start up loan interest rates and repayment terms
The Start Up Loan scheme has a fixed interest rate of 6% per year, so your repayments stay the same and are easier to budget for. You can choose a repayment term of one to five years. You do not pay application fees or early repayment charges, so you can repay the loan early if your business does well.
How to apply for a start up loan
To succeed with your loan application, prepare thoroughly and show that your business is viable and you can repay the loan.
1. Calculate your funding needs and create a business plan
Create a business plan that shows how your business will succeed.
2. Demonstrate repayment ability through detailed financial projections
Lenders look closely at your ability to repay. Include:
- Monthly cash flow projections: revenue minus expenses
- Repayment schedule: specific amounts and dates you can afford
- Break-even timeline: when your business becomes profitable
3. Identify available security or collateral
- Secured options: home, vehicle or valuable assets reduce interest rates
- Unsecured loans: available for smaller amounts (typically under £25,000) but at higher rates
Once your plan is ready, complete your application through an official Start Up Loans delivery partner. They will review your documents, assess your application and support you throughout the process.
How long does a start up loan take?
You can get a Start Up Loan in as little as five days if you have all your documents ready, including a business plan and cash flow forecast. If you need more support, it may take two to three months. Prepare your documents in advance to speed up the process.
Bank loans for business
Term loans give you a lump sum to repay over a set period with fixed or variable interest rates. Lines of credit let you draw funds as needed, usually at lower interest rates.
Key differences:
- Term loans: best for one-off start up costs, require security for better rates
- Lines of credit: ideal for ongoing expenses, typically require established business history
Alternative startup financing
Alternative start up finance gives you options if traditional banks decline your application. Each option has different benefits and requirements:
Investors
- What it is: equity funding in exchange for business ownership
- Benefits: mentorship and business expertise included
- Consideration: you give up partial control but can potentially buy back shares
Friends and family loans
- What it is: personal loans from your network
- Benefits: flexible terms and lower interest rates
- Consideration: get agreements in writing to protect relationships
Crowdfunding
- What it is: raising funds from many small contributors online
- Benefits: market validation and customer engagement
- Consideration: you need a compelling pitch and strong marketing effort. The Financial Conduct Authority notes that start up investments are high risk and you could lose your capital.
Peer-to-peer lending
- What it is: borrowing from individual lenders through online platforms
- Benefits: potentially faster approval than traditional banks
- Consideration: limited amounts available without security
- What it is: using personal savings, credit cards or home refinancing
- Benefits: complete control and ownership retention
- Consideration: high personal financial risk if business fails
Government start up loans are specifically designed for new businesses without security or guarantors:
- Loan amount: £500 to £25,000
- Interest rate: Fixed 6% for the loan lifetime
- Additional support: 12 months of free business mentoring
- Eligibility: Available to UK residents starting or growing a business
Managing your startup finances effectively
Managing your start up finances effectively becomes easier once you secure funding. Track your loan repayments, monitor cash flow and keep accurate financial records from day one.
Try Xero for free to manage your start up's finances with automated bookkeeping, expense tracking and real time financial insights that help you stay on top of loan obligations and business growth.
For comprehensive guidance, explore the business start up guide and finance options overview.
FAQs on start up loans
Find answers to common questions about getting a loan to start your business below.
Can a startup get a loan?
Yes, start ups can get loans, especially through government-backed schemes like the Start Up Loan. While traditional banks can be hesitant due to the lack of a trading history, these schemes are designed to support new businesses.
What is the interest rate on start up loans?
The government-backed Start Up Loan has a fixed interest rate of 6% per year.
How long does a start up loan application take?
You can get a Start Up Loan in a few weeks if you have your business plan, cash flow forecast and other documents ready. If you need more time to prepare, it may take a few months.
Do I need security for a start up loan?
No, the government-backed start up loan is unsecured. You do not need to offer assets as collateral.
Disclaimer
Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.
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