Start Up Loans: how the government scheme works

As a start-up, access to finance can be frustrating without significant initial capital/equity injections, as strict bank loan eligibility requirements can limit your options. If you’ve struggled to secure funding from other sources, you can apply for the Start Up Loans scheme, as it’s aimed at new businesses that need capital to support early growth. 

Start Up Loans are personal loans for business purposes, backed by the UK government, offering up to £25,000, and delivered via the British Business Bank’s loans company.

Learn how the scheme works below, including loan terms, rates, eligibility criteria and how to apply, plus alternative new business funding solutions. 

How the Start Up Loans scheme works

The Start Up Loans scheme was established in 2012 to help new businesses in the UK that have difficulty accessing finance via traditional funding routes. Unlike many other sources of business funding, which can have a wide range of eligibility criteria and qualification limits, the scheme presents fewer barriers for start-ups. 

If approved, here’s what you can expect from a government-backed start-up business loan:

• Loan amount: An unsecured personal loan of £500 to £25,000 (and up to £100,000 per business, if multiple partners apply individually), but strictly for business purposes.

• Interest rate: 7.5% per year.

• Repayment terms: Loans are repayable over 1 to 5 years.

• Business support: The scheme offers 12 months of free mentoring.

Note: The amounts, rates and terms above are correct as of 29th September, 2026.

Use the Start Up Loans repayment calculator to see your likely monthly instalments and total costs based on your ideal loan amount and repayment period. 

What is an unsecured personal loan for business purposes?

An unsecured personal loan for business purposes doesn’t require commercial assets as collateral. Lender assessments primarily focus on personal credit, unlike most business loans (unless you’re not incorporated or have limited trading history). 

You can only use Start Up Loans for starting/growing a business. The scheme states that this doesn’t include debt repayments, training, qualifications/education programmes or investment opportunities that aren’t focused on ongoing sustainable business.

Key benefits of the Start Up Loans scheme

• Access to a loan when you’re struggling to get business finance from other lenders 

• Fixed interest rates and predictable monthly repayments

• Options to repay loans over a period of a year or as much as 60 months, depending on your needs and situation

• No arrangement or set-up fees or other hidden costs

• You don’t need to supply any assets or guarantors for the loan

Are there any downsides?

• There is a fair amount of information to gather for completing the loan application

• Time from application to approval can take several weeks, depending on how well prepared you are when you apply 

• The average business start-up loan amount from the scheme is around £10k, which may not meet your funding requirements

• You have to prove that you haven’t been able to get business finance elsewhere

Who can apply for the Start Up Loans scheme?

The scheme is available to brand-new businesses and companies operating for less than 5 years, including sole traders, limited companies, partnerships and many other business entities. This is broader access to finance compared to most UK banks and business finance lenders.

So, you can apply if you’re a UK resident who is 18 or over with the right to work here and a business trading for under 60 months. But it’s no guarantee you’ll be approved. While the scheme is largely aimed at those who’ve struggled to get finance from mainstream lenders, it shouldn’t be viewed as a loan for those with bad credit. Non-qualification for other loans is often down to trading history thresholds. 

Start Up Loan applications are still subject to personal credit checks, but the scheme’s approval process also assesses business viability and cash flow. The scheme also applies its Personal Survival Budget, which looks at your average monthly income minus all typical costs and expenses, to determine whether you’re likely to meet your monthly Start Up Loan repayments.

Ineligible businesses 

While the eligibility criteria for Start Up Loans is intentionally broad, the scheme sets out various exemptions, such as the following:

• Banking providers, money transfer services and other FCA-regulated institutions

• Betting and gambling companies

• Charities (although certain community-focused organisations can apply and be judged on a case-by-case basis)

• Agents for third parties

• Chemical manufacturers and businesses producing and selling weapons, drugs or pornography, or involved in illegal activities

How to apply for the scheme

It’s fairly straightforward to apply for Start Up Loans, but you’ll need to be well-prepared. Here are the typical steps involved in applications:

1. Go to startuploans.co.uk or apply via GC Business Finance, which is a funding delivery partner for the scheme.

2. Read the key scheme and loan information.

3. Answer several questions in the eligibility checker. This stage involves a soft check, which doesn’t impact your credit score. 

4. Complete the online registration form, providing various business details and personal financial information (for affordability assessments). You’ll also need to outline your business plan and cash flow forecast. This requires a hard search, which can temporarily affect your credit score.

5. Work with an assigned business adviser to complete the application.

Once you’ve applied, you can expect to wait between 2 and 4 weeks for a decision, as it involves document checks, cash flow and budget assessments, and business plan reviews.

What happens once my business has outgrown a Start Up Loan?

You can consider numerous options after you’ve received/used a Start Up Loan. While access to finance in early stages can be tricky, once you’ve been operating for a year or two, more options open up.

You’ll build up business credit history, as long as you’ve made prompt loan repayments and demonstrated responsible credit use (with credit cards or other facilities). This will generally improve your chances of approval for other business loans and business finance products. Plus, many banks and finance providers have trading history limits, so you may automatically qualify.   

Also, business growth during and after using a Start Up Loan, alongside good cash flow management, can boost your financial health and help you meet minimum turnover thresholds. 

Alternatives to Start Up Loans

While the Start Up Loans scheme is a good option for new businesses that struggle to get loans elsewhere, other start-up finance options are available. 

Here are some common alternatives to Start Up Loans: 

• Invoice finance: Giving businesses fast access to capital tied up in unpaid invoices, with lenders focusing more on your clients’ creditworthiness.

• Merchant cash advances (MCA): A form of revenue-based finance that helps retailers align repayments with revenue. But many providers have a minimum turnover threshold.

• Asset finance: A range of finance solutions for short- and longer-term asset needs, from machinery to vehicles, such as leasing agreements and hire purchases. 

• Equity finance: From venture capital to crowdfunding, equity investors can get your business off the ground, but you must give up some business control and future profits. 

How Funding Circle can help

If you’re a brand-new business without the required trading history, Start Up Loans are a good option. However, if your business is a little further on, Funding Circle can help.

We offer several start-up finance options for businesses in their early stages, with larger funding amounts available. To qualify, you’ll need to be a UK limited company or LLP that’s been trading for at least 12 months.

From term loans for small businesses to flexible credit lines and business credit cards, we can offer fast access to working capital to manage cash flow, spread the cost of key purchases and fund business expansion. You can also use our asset finance Marketplace to find an agreement that suits your asset and equipment needs.

If it’s a loan you’re after, explore our business loans page and use our eligibility checker. You can borrow between £10,000 and £750,000 over 1 to 6 years, depending on your circumstances, and apply in just 7 minutes with decisions provided in less than that.

Start Up Loans FAQs

What is the Start Up Loans scheme?

The Start Up Loans scheme is a government initiative for new UK businesses that need access to much-needed funding at the start of their journey. You can borrow up to £25,000 and repay it over 1 to 5 years, with a fixed interest rate of 7.5% per year*. It’s an unsecured loan which is delivered by British Business Bank’s dedicated Start Up Loans company, 

*Interest rate, loan amount and repayment options correct as of 25th September 2026.

Can a sole trader get a Start Up Loan?

Yes, sole traders are eligible for a Start Up Loan in the UK, as it’s a personal loan for business purposes. Most business entities/legal structures are eligible, as qualification criteria mainly focus on your age, location, trading history and business/industry type. 

See the Start Up Loans website’s eligibility page for a list of exempt businesses and loan uses. 

Is Start Up Loans a good option for bad credit?

In a sense, yes, as the scheme was set up to provide business loans for start-ups that struggle to get funding from banks and other traditional lenders. But this isn’t necessarily due to bad credit. It’s often just down to a lack of trading history. Many finance providers require at least a year of trading and have minimum turnover thresholds.

While applications involve a personal credit check, the scheme looks at business viability and cash flow forecasts rather than just credit scores.

Disclaimer 

15/10/26 – While we want to help as much as we can, the information found here is provided solely for informational purposes and should not be considered financial or legal advice. To the extent permitted by law, Funding Circle does not accept any liability for any loss or damage which may arise directly or indirectly from the use of, or reliance on, the information contained here. If you have any questions, please speak to your professional adviser or seek independent legal advice.