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How to borrow up to £100,000 for your new startup***

Brrr

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I noticed this post from @Vigilante got bumped up and I decided to give it a read
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I initially thought “oh wow I can’t wait to get to the point where I can make some quality posts to help people make a success of their business” thinking that I would need more years under my belt to start really giving advice. But I realised that I do have experience with at least one aspect of starting, and that was trying to get money to start my business when I didn’t have anywhere near enough capital.

In this post I’m hoping to share my experience with “Start Up Loans”, a government-backed lending scheme designed to fund new start-ups, and hopefully provide a little insight into what is involved if you want to go down this route. As you can tell from the currency, this is for the UK only but you might find it useful anyway and if you are in the UK this will help you answer the question most people thinking of starting a business have “Where do I get the money to start?”

Let me start with some heavy, heavy disclaimers:
  • This is in no way a recommendation to borrow money to start a business
  • This type of loan is an unsecured personal loan for business use, not a business loan. That means that you are personally liable for the amount of money that you borrow, regardless of the legal structure of the business.
  • If you do go with the scheme, I can in no way guarantee that you will be approved for all or any of the loan you are hoping to get.
  • I am in no way affiliated with the scheme or the providers (or actually anything related to it), simply sharing my experience as an applicant
  • I went through all this between Nov 2017-April 2018, while I can’t imagine things have changed too much some stuff might be different.
Back to the scheme.

Start Up Loans is a government scheme introduced as part of the British Business Bank to encourage and support businesses and entrepreneurship in the UK particularly in regard to access to credit. Set up in 2014 it’s 100% government owned, but independently run as a PLC.

That’s some context, let’s get to the process as an applicant. These are all the steps start to finish:
  1. You register your interest on their main website with some basic contact details and eligibility questions and submit a form.
  2. They get in touch with you and assign you a delivery partner, a third-party company that essentially applies on your behalf to the government. You don’t get to choose the company, but examples include Virgin Startup, Startup Direct and the Princes trust. They also send you some documentation and “guides”, which you may or may not find useful. The next step describes the process for my delivery partner, but I assume it would be very similar for all of them.
  3. The delivery partner sends you another email on the terms of the scheme and loan (more on that later) and another much more detailed questionnaire on the loan and your business which includes:
    • How much you want to borrow (£25k max, more on that later)
    • How much you have already put in of your own money (and how much more you can put in
    • If it is just you or if you have business partners
    • Your business idea
    • What stage you are with putting the business together
    • Other questions regarding the business
    • “Business readiness assessment” where you have to state if you’ve made a business plan, cash flow, know who your customers will be, received orders and if you will be ready to trade once you get the funding
  4. They then get back to you to let you know if your business is eligible (5 working days)
  5. If you are eligible, you get assigned a business advisor who is a real person who gives you a call to have a chat. And they send you an email with:
    • A business plan template to fill out (I am happy to share what they asked for in the template or I can PM you the template if you want to have a look at what they might ask for)
    • Cash flow forecast and personal budget
    • 3 months of personal bank statements
  6. Depending on what your business requires, you will likely be asked to provide evidence for the majority of the expenditures, rent, salary, etc. They basically want to see that the numbers haven’t been pulled out of your behind.
  7. Once they look at everything and check that it’s real, they will likely get back to you letting you know if you have been awarded the full amount of the loan or what the maximum amount, they can lend you is.
  8. Paperwork is sent over with all the details, you sign your life away and a few days later the money appears in your bank account.
Now, in point 3. I mention that the maximum amount that you can borrow is £25k, while the title says 100k. I haven’t lied to you or clickbaited. An aspect of the scheme that isn’t very obvious when you search and read into it online is that you can actually have multiple people (up to four) apply for separate loans for the same business. Even more interestingly (this may have changed), they don’t have to be salaried employees and they don’t even need to be shareholders of the business. So, you can have a sole owner, but multiple loan holders.

You only need to produce one business plan and cashflow, but every person needs to show their bank statements as they are applying as individuals. I need to reiterate that part, these are personal loans! Before you think about getting your three mates Tom, Dick and Harry to borrow money for your wacky idea know that it is more than friendship on the line. You can be affecting other people’s credit scores and lives with this. I am simply showing you an option and hope that people use this part of information wisely and responsibly.

Ok, one last detail on the scheme before I post my experience/opinion to finish off. The loan advertises at 6% but I’m 90% sure I’m actually paying 6.5% due to some technicality or fee and the loan terms are up to 5 years. You can “pause” the loan if you want and there are no early repayment fees. You also get free mentorship and workshop sessions (if you want, they tend to be in the bigger cities)

Now for my experience, as someone who was completely new to business and with limited funds this scheme was a lifesaver. I can honestly say that I would not have been able to set up without it. I was 23 when I started my application with no house or anything to borrow against so no bank would touch me, I had a few savings but as my business is very capital intensive to start it would have taken me years to get going. Also having to go through all the process of showing exactly where the money is going to come in and go out for a business plan that other people are going to be looking at is really valuable as a newbie. Additionally, the guy actually guided me and offered a lot of help. He basically told me “you are going to need more money” and he recommended putting someone else down so I could borrow £50k rather than the £25k (even than that wasn’t enough!).

There were some negatives, this process took forever. Around 6 months in all, but this was partially because I was slow with providing documentation (or sometimes didn’t have the answer right away). They also pulled the rug a bit from under me telling me that they could only approve £40k for my application out of the £50k I was going for. They suggested another agency for the remainder that might have approved me but their loan terms were pretty disgusting, I ended up borrowing £10k from family members. I would recommend not relying solely on this for money and have some backup plans. They also really want to see you financially committed to the business, so having money that you’ve already put in is very good.

Lastly, and without wanting to get too political, I think this scheme is fantastic and a great use of government money. It stimulates the economy, creates jobs and levels the playing field to some extent for people wanting to enter the market. The interest rate and terms are super fair IMO and you also just get a lot of information for free, although I never accessed the mentorship. I wish there were more schemes like this and hope that this never gets scrapped as a lot of good can come out of it.

I hope this was of help, it’s one thing to see a few bullet points on a website and another to hear an entire experience start to finish. If you have any questions, I’ll be happy to answer them and help however I can.
 

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MHP368

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Does the UK have grant money for small businesses as well or just these loans?
 

fastlanedan

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Jan 2, 2016
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Does the UK have grant money for small businesses as well or just these loans?
Yes but it depends what the business is, what the money is needed for and where it is (A lot of the grant schemes are regional and often very specific).

For instance where I live you can get £10k if you bring an empty retail property back into use.

Getting a grant to start a business is not easy (The startup loans described by OP are fairly easy, The lenders actually get told off if the default rate is too low!) but grants for capex that creates jobs seems to be easier to get once you've got a track record & know how to pitch it.

The key on some of them is to have a good relationship with the people who make decisions. They'll tell you the unwritten rules and save you making applications that don't succeed.
 

100k

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Nice write up. Useful for those looking to get started.

I didn't know you could have loved ones co-sign the loan with you and raise £100k.

I think they were called Business Link (before shutting down in the 2010 due to the recession). I was lucky enough to get a grant and loan through business link to get started with my little ebay hustle back then (worked with the prince's trust).

I wonder if it would be possible to borrow £1,000,000 if you had 100 shareholder that wanted to each borrow £10k towards setting up 1 business. Or if its limited to just 4 people max per business.
 

fastlanedan

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Jan 2, 2016
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Nice write up. Useful for those looking to get started.

I didn't know you could have loved ones co-sign the loan with you and raise £100k.

I think they were called Business Link (before shutting down in the 2010 due to the recession). I was lucky enough to get a grant and loan through business link to get started with my little ebay hustle back then (worked with the prince's trust).

I wonder if it would be possible to borrow £1,000,000 if you had 100 shareholder that wanted to each borrow £10k towards setting up 1 business. Or if its limited to just 4 people max per business.
Oh man Business Link, that's a name I haven't heard in a while. I know someone who went to them for a grant in '08 but was in the "wrong" sector to get one.

There's a £100k limit per business sadly
One thing I will say is that they want to see roughly where this money is spent, They like Capex, they don't like funding stock/working capital and they don't like businesses that can't sustain themselves from cashflow within 3 months so it's actually quite hard to get more than you really need especially if it's not something physical like a gym/cafe that would need fitting out.

Another secret a delivery partner told me: The most common amount borrowed on a startup loan is about £7k (per person). The reason for this is anything below around £7500 can be approved by the delivery partner themselves, anything above has to be referred up to the "startup loans company" itself who do much more DD on the loan before approving.
 

100k

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Oh man Business Link, that's a name I haven't heard in a while. I know someone who went to them for a grant in '08 but was in the "wrong" sector to get one.

There's a £100k limit per business sadly
One thing I will say is that they want to see roughly where this money is spent, They like Capex, they don't like funding stock/working capital and they don't like businesses that can't sustain themselves from cashflow within 3 months so it's actually quite hard to get more than you really need especially if it's not something physical like a gym/cafe that would need fitting out.

Another secret a delivery partner told me: The most common amount borrowed on a startup loan is about £7k (per person). The reason for this is anything below around £7500 can be approved by the delivery partner themselves, anything above has to be referred up to the "startup loans company" itself who do much more DD on the loan before approving.
Yeah, brings me back. Time flies. LOL

Shame there is a cap, that makes it so much harder for your average joe to pool his money together in a syndicate and actually build a business, and not just another mom/pop job for themselves.

Oh well, we'll find some ideas in mind. Like everyone using a business credit card to borrow the capital, then when the business entity has the capital - it refinances the loan - and turns that high interest loan into a much more sustainable one.
 

fastlanedan

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Jan 2, 2016
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Shame there is a cap, that makes it so much harder for your average joe to pool his money together in a syndicate and actually build a business, and not just another mom/pop job for themselves.
Yeah, Sadly a lot of the loan recipients are ending up with profitable jobs (or failing) rather than anything that can be scaled.

I keep getting letters to my Ltd offering business credit cards. No idea whether any of them would approve me but there's finance out there for the rockiest of businesses. Just look at the P2P loans on some of the platforms. some of them are absolute garbage.
 

Hazelnut

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Sep 3, 2019
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Start up loans are great but I have a feeling that most fast lane business ideas (online and service based business ideas), would be assessed differently to product base businesses.
 

Andy Bell

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I applied to something similar in Canada I got accepted but had to bow out since the loan required me to start selling a large percentage of my goods in Canada and in the future file as a business in Canada. If you live abroad as a digital nomad like me this really takes away the appeal.
 

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