Loans to start a business

Loans to start a business are available to UK founders even with little or no trading history. The most accessible route for early stage businesses is the government backed Start Up Loan scheme, which offers up to £25,000 per founder at a fixed rate of 7.5% per annum. Beyond that, specialist alternative lenders, asset finance providers, and finance marketplaces like Capitalise can match new businesses with funding suited to their stage and circumstances. This guide explains how each type of loan works, what lenders look for, how much you can realistically borrow, and how to put together the strongest possible application.

What is a loan to start a business?

A loan to start a business is a form of borrowing specifically designed for new or early stage businesses that do not yet have the trading history required for a standard business loan. Most traditional lenders want to see at least two years of accounts before they will offer credit. Start up loans fill that gap. The way these loans work is straightforward, a lender provides you with a lump sum, which you repay over an agreed term with interest. Because your business has limited financial history, lenders use other signals to assess whether you are likely to repay, including your personal credit score, your business plan, your industry experience, and whether you have put any of your own money into the venture.

Some start up loans are structured as personal loans used for business purposes. This means the loan is taken out in your name rather than the company's name, and your personal credit history is what the lender assesses. This is particularly common with the government backed Start Up Loan scheme, and it is one of the reasons these loans are accessible even before a business has started trading.

What can you use a start up loan for?

Loans to start a business can be used for almost any legitimate business purpose. Common uses include:

• Buying stock or equipment

• Covering initial marketing and website costs

• Paying deposits on premises

• Fitting out a workspace

• Funding early hiring

• Building working capital to cover the first few months of trading before income starts coming in.

Lenders look more favourably on applications where the money is tied to a specific, productive use rather than a general request for cash. The more clearly you can explain what the money is for and how it will help the business generate income, the stronger your application will be.

What types of loans are available to start a business?

There are several different routes to funding available to UK start ups. Each one works differently, suits different types of business, and comes with its own eligibility criteria.

Each of these is explained in full below.

How does the government Start Up Loan work?

The government Start Up Loan is the most widely used funding option for early-stage businesses in the UK. It’s delivered through the British Business Bank, a government owned institution set up to support UK businesses that struggle to access finance through traditional routes.

The loan is technically a personal loan used for business purposes. This distinction matters because it means the credit check is run against your personal credit file, not your business accounts. It also means you are personally responsible for repayment if the business cannot repay. However, it also makes the scheme accessible to founders who have not yet built up any business trading history, including those who have not yet started trading at all.

From 6 April 2026, the scheme was expanded to include businesses that have been trading for up to 60 months (five years), up from the previous limit of 36 months. The fixed interest rate for new applications also increased to 7.5% per annum on the same date. Business owners can borrow between £500 and £25,000. Every successful applicant also receives 12 months of free business mentoring. This is provided through a network of accredited mentors and covers areas like financial management, marketing, and business planning. 

How do alternative lenders work for start ups?

Alternative lenders are non bank lenders that are faster, more flexible, and more willing to lend to businesses with limited trading history than traditional banks. The trade-off is higher interest rates, typically 17%-45%+ APR.  Many use Open Banking to assess your finances in real time rather than waiting for annual accounts. Decisions often come through within 24 to 48 hours. They are a good option if you need more than the government scheme offers, need a fast decision, or have been declined elsewhere.

What is asset finance, and can start ups use it?

Asset finance is borrowing secured against a physical asset such as equipment, a vehicle, or machinery. The two most common forms are hire purchase, where you pay in installments and own the asset at the end, and leasing, where you pay to use the asset for a set period and return it at the end. Because the loan is secured against something tangible, asset finance is often more accessible to start ups than unsecured borrowing. It is most relevant if your business needs specific physical assets to operate.

What is revenue based financing, and how does it work for start ups?

Revenue based financing is funding where repayments are tied to your monthly revenue rather than a fixed amount. A lender advances a lump sum and takes a percentage of your revenue each month until the total is repaid. If revenue is higher, you repay more. If it is lower, you repay less. It is priced using a factor rate rather than APR. A factor rate of 1.3 on a £10,000 advance means you repay £13,000 in total. It suits e-commerce businesses, retailers, and subscription businesses with variable income, and some lenders will consider businesses with only a few months of sales history.

Can you get a loan to start a business with no trading history?

Yes, there are loans specifically designed for businesses with no trading history. The government Start Up Loan is the most prominent, and it’s available even before you have started trading. If you have no trading history, lenders shift their focus almost entirely to you as the founder. They will look at your personal credit score and existing financial commitments, the quality and realism of your business plan, whether you have invested any of your own money, and your relevant experience in the industry.

What do lenders look for in a start up loan application?

When your business has little or no trading history, you become the main signal of creditworthiness. Lenders are assessing whether you are likely to repay, and they do that by looking at several factors.

• Your personal credit score is one of the first things any start up lender will check. Your credit score is a numerical rating, generated by credit reference agencies that reflects your history of borrowing and repaying money. It is based on factors like whether you have made payments on time, whether you have any County Court Judgements (CCJs) against you, how much existing debt you have, and how long you have held credit accounts. A CCJ is a court order issued when a debt has not been repaid, and it will significantly reduce your chances of being approved. A clean credit history with no defaults or missed payments will give you access to better rates and a wider choice of lenders.

• Your business plan is the document that explains what the business does, who the customers are, how it will make money, and how the loan will be used and repaid. A strong business plan should include a clear description of your product or service, an analysis of your target market, an overview of competitors, your pricing model, your sales and marketing strategy, and your financial forecasts.

• Your cash flow forecast is a month-by-month projection of the money coming into and going out of the business. Lenders use this to assess whether the business can realistically generate enough income to cover its costs and repay the loan. A 12-month forecast is usually the minimum, and 24 months is preferable.

• Your personal investment in the business is a signal of commitment. If you have put your own money in, lenders view that as evidence that you believe in the business and that your interests are aligned with theirs. Even a modest contribution helps.

• Your industry experience reduces perceived risk. If you have worked in the sector for several years before starting the business, make that explicit in your application. It gives lenders confidence that you understand the market and the operational challenges involved.

Do you need a personal guarantee for a start up loan?

A personal guarantee is a legal commitment that if the business cannot repay a loan, you will repay it personally from your own assets. It is commonly required by alternative lenders and high street banks when lending to businesses with limited trading history or assets, because it gives the lender an additional route to recover the money if the business fails. The government Start Up Loan does not require a personal guarantee in the traditional sense, because it is already structured as a personal loan. You are personally responsible for repayment from the outset, which is effectively the same outcome.

Before signing a personal guarantee, it is worth understanding exactly what you are committing to. In the event of business failure, a personal guarantee means your personal finances, savings, and in some cases your home could be at risk if the debt is not repaid. Many founders sign them without fully appreciating the implications. Reading the terms carefully, and taking independent legal advice if the amounts involved are significant, is always sensible.

What documents do you need to apply for a start up loan?

The documents required will vary by lender, but for most start up loan applications you should prepare the following:

• A business plan covering your market, proposition, competitive landscape, and growth strategy

• A 12 month to 24 month cash flow forecast showing projected income and outgoings

• Proof of identity such as a passport or driving licence

• Proof of address such as a recent utility bill or bank statement

• Personal bank statements for the last three to six months

• Details of any existing personal credit commitments

• Evidence of any personal capital you have invested in the business

For the government Start Up Loan specifically, you will also need to complete a personal survival budget (a summary of your personal monthly income and essential outgoings) and in some cases a financial skills assessment. These are in addition to the business plan and cash flow forecast, and the level of support provided by the scheme's delivery partners means most applicants can complete these with guidance rather than needing specialist financial expertise.

What are the alternatives to a loan to start a business?

A loan is not the only way to fund a new business. Depending on your business model, growth plans, and personal circumstances, some of these alternatives may be worth considering alongside or instead of borrowing.

• Grants are a form of funding that does not need to be repaid. The UK government, local enterprise partnerships, and some private organisations offer grants to new businesses in certain sectors or regions. Grants are competitive and often come with specific conditions about what the money can be used for and what outcomes you need to achieve, but if you qualify, they can provide meaningful funding without adding to your debt.

• Equity investment means raising money by selling a share of your business to an investor. Angel investors are typically high-net-worth individuals who invest their own money into early-stage businesses in exchange for equity and sometimes a board seat or advisory role. Venture capital funds invest larger amounts, usually into businesses with high-growth potential and a clear path to significant scale. Equity investment avoids repayments altogether, but it means giving up some ownership and control of your business, and it is typically only available to businesses with high-growth potential.

• Crowdfunding is a way of raising money from a large number of individual investors or supporters. Equity crowdfunding platforms like Seedrs and Crowdcube allow you to offer shares in your business to the public in exchange for investment. Reward crowdfunding platforms like Kickstarter allow you to pre-sell products or offer rewards in exchange for pledges. Crowdfunding works best for businesses with a strong story, a consumer product, or an engaged audience.

• Peer to peer lending connects borrowers directly with individual investors through an online platform, bypassing banks altogether. You still borrow money and repay it with interest, but the money comes from individual lenders rather than a financial institution. Criteria can sometimes be more flexible than with banks, and rates can be competitive, though this varies significantly by platform and applicant.

Find loans to start a business with Capitalise

We work with a panel of 130+ lenders, including specialist start up lenders who assess early-stage businesses. Rather than applying to multiple lenders individually, you can complete a single application. You’ll also receive support from a dedicated funding specialist who will help you understand all your options and support you every step of the way.