A startup is a business in its first stage of operations. Like all types of businesses, startups aim to resolve real-life problems with real-life solutions. Achieving this in the modern world demands innovative and disruptive means that are made possible by tech-driven products or services. But access to technology is not free; it requires funding.

The mushrooming of entrepreneurs eager to change the world with their bright ideas compelled the rise of several financing options such as small business loans and new business loans which have been tailored to fit the needs of startups.

How do startup loans work?

Just like traditional loans, startup loans require you to commit to repay what you borrowed with the added interest in a certain period.

Interest rates for startup loans in the UK average 6 per cent while repayment terms can last one year to five years.

And since most startup loans are of the unsecured type, applicants do not need to post any asset as collateral when borrowing or sign up a guarantor, a secured-based arrangement that usually deters individuals and businesses from obtaining a loan.

Which startups are eligible?

Eligible criteria among lenders may vary. But most require that the applicant—for direct applications some require the founder or co-founder while others are fine with a company

director—is at least 18 years old; a UK resident; the startup is headquartered in the UK; the business has been operating for less than two years.

Lenders also require the submission of a personal survival budget plan to assess whether you can pay back your loan. On top of this, lenders conduct a credit check which will also help borrowers avoid increasing financial indebtedness

For what business purposes can the startup loans be used?

Startups can use loans to serve a number of business-related purposes: buy necessary equipment make an entrepreneur’s idea become reality; workplace rent; pay for workers’ wages; and invest in the stock market to add an avenue of money generating means, among others.

Who offers loans for UK startups?

Loans intended for startups and new businesses are offered by many governments, such as the UK, which are stepping up support for this sector that can potentially drive the economy upward.

Here are some lenders in the UK that offer startup loans, as well as those who offer new business loans and small business loans which are also applicable to startups:

1. Start Up Loans Co.

Minimum: £500

Maximum: £25,000

Interest rate: 6% per annum

Repayment term: 1 to 5 years

A Start Up Loan is a government-backed personal loan available to individuals looking to start or grow a business in the UK. Aside from finance, approved applicants receive 12 months of free mentoring and exclusive business offers to help them succeed.

Startup Loans was established in 2012 as a subsidiary of the British Business Bank and deliver the Government’s Start Up Loans programme which aims to help new and early-stage UK businesses access affordable finance and mentoring support.

Start Up Loans work with a national network of delivery partners based across England, Wales, Scotland and Northern Ireland. In addition to helping applicants prepare their business plan and cash flow forecast, delivery partners are tasked to assess final applications and provide ongoing mentoring support to approved applicants.

Start Up Loans also work with two finance partners namely Street UK Limited and The Enterprise Loan Fund Ltd (trading as Business Finance Solutions) which are both regulated by the Financial Conduct Authority.

Originally intended for young entrepreneurs, Startup Loans have removed its age cap, allowing for more startups to tap its readily available funds.

2. Virgin StartUp

Minimum: £500

Maximum: £25,000

Interest rate: 6% per annum

Repayment term: 1 to 5 years

Virgin StartUp, with support from the Virgin Group, is run on a not for profit basis and is an an official Start Up Loans delivery partner that has distributed millions in Startup Loan funds to hundreds of individuals to fund their startup businesses.

Virgin StartUp is composed of a team of experienced business advisers and specialized experts in business management and administration.

Every funded entrepreneur receives twelve months of exclusive support as part of The Funded Club. Other benefits include an experienced mentor who’ll work with your business for six months a dedicated business advice helpline; opportunities to meet with specialist mentors; discounted access to events and masterclasses; as well as promotional, marketing and PR opportunities at Virgin StartUp, including being featured in content on our website and presenting at our events.

Every eligible loan applicant is partnered with a business adviser who will help you complete a full business plan and set of financial projections.

Virgin Startup does not impose a setup fee or early repayment penalties. The transfer of loans takes three weeks to a year to process.

3. StartupDirect

Minimum: £500

Maximum: £25,000

Interest rate: 6% per annum

Repayment term: 1 to 5 years

StartupDirect provides a dedicated business adviser to help you map out your business plan down to your financial forecasts. In addition to an adviser, a mentor, who will support you for 12 months following receipt of your loan, will also be matched up with you.

4. iwoca

Minimum: £1,000

Maximum: £10,000 for startups

Interest rate: Not stated

Repayment term: up to 1 year

With business loans supported by the European Investment Fund’s Loan Guarantee Facility. T, iwoca offers flexible credit solutions to small businesses. They assess businesses for loans through the use of technology to calculate the risk and not just use credit scores.

Aside from offering a fast application process, iwoca can make fast loan decisions and deposit funds to a startup as quick as in a few hours.

5. HSBC

Minimum: £1,000

Maximum: £25,000

Interest rate: Not stated

Repayment term: up to 1 year

HSBC is an international banking provider that offers a number of various services to individuals and businesses. Their services, through their Small Business Loan and Flexible Business Loan packages, are extended to small businesses and new start-up businesses.

The Small Business Loan is a fixed payment loan for £1,000-25,000 with the option to defer payment for the first three months.

The Flexible Business Loans can be a fixed or variable rate loan for borrowings of more than £25,000, This package can offer up to 24 months interest and allows payments to be deferred to up to two monthly payments each year.