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Last updated: 14 March 2024

Top 4 Business Startup Loan Options: A Full Guide to Getting Funding

Find the Best Business Startup Loans

When you start a new company you are probably thinking about the best business startup loans or grants available to you. There are many options to finance your new business, whether it is through equity investments or business loans.

Regardless of which commercial loan option you select, it is imperative that you have a solid business plan ready with a clear outline of how your money is to be spent. Once you have thought about these core elements, you are ready to take your business to the next level and seek funding for your small business.

How to Get Started with Business Startup Funding

When talking about business startup funding there are two options: through debt or equity. It is important to know the difference between these two, and the respective advantages and disadvantages.

Equity vs Debt

Funding for small business or startups can be done through equity investors or debt financing. Equity investment is the exchange of money for ownership share of the business. Anyone can be an equity investor; a family member or friend, for example, but typically it is an angel investor or venture capitalist.

Debt financing is the borrowing of a sum of money, which is to be paid back over a period of time. True to its name, this type of financing means your company will be in debt, while equity financing does not.

Typically, a lender will assess a company’s viability by their financial statements and business plan. The funding process for startups and funding for small businesses differ in that startups do not have financial statements at hand as they are new.

When you are just starting out, there are many different ways of funding your business. Using personal money and savings is the method with the lowest risk, because you retain full ownership and do not accrue debt. However, this is not a possibility for everyone, therefore, it is important to inform yourself of all the business startup loans available to you.

Business startup loans

4 Types of Business Startup Loans

It can be a daunting task finding the best loans to start a business, so it is important to seek good business startup advice. Most experts say the key avenues are grants and loans, online lenders, and bank funding.

1. Credit Card Loans

Using credit cards (either private or company cards) are an option, provided you already own one or are eligible for one. This is a risky method of funding for a small business, and should only be done if you are certain you have enough money to repay.

Another important factor with credit card loans is interest rates: you want to ensure your credit card has a low interest rate, otherwise, your monthly installments will quickly add up to a large sum.

2. Government Startup Loans

The government offers business startup loans, which can you can apply for online.

    • Terms for Government Startup Loans
    • i. You can borrow between £500 - £25,000
    • ii. Fixed interest rate of 6% per annum
    • iii. Payback period of 1-5 years
    • iv. You need to have, or plan to start, a business based in the UK that has not been fully operating for more than one year
    • v. You must be 18 or older, and be residing in the UK

This type of business loan by government is a great option as there are no application fees or early repayment fees. In addition, businesses receive mentoring and support services, which can be invaluable to a startup business.

Apart from the official government website, you can apply for government startup loans on Virgin, and NWES.

3. Bank Loans

Bank loans are a common form of business financing, however, they are typically used by more established companies rather than startups, as banks have selective screening criteria.

Borrowing from a bank can be a time-consuming process, which typically involves presenting your business plan, financial history, and other documentation.

You will also have to offer some type of collateral, as bank loans are usually secured business loans.

Despite the tough screening criteria, bank loans provide the the security of monthly installments and fixed interest rates.

Business Line Credit

Business line of credit is a less rigorous form of a funding. This is a specific type of business startup loan, where you can borrow only the amount you need, and repay only what you have used. This helps with financing working capital and easing slow cash flow periods. They are usually unsecured business loans, so no collateral is needed.

Equipment Loan

An equipment loan is another specific business startup loan useful for entrepreneurs, as you get fast access to the equipment you need. If you need equipment for your business, such as coffee machines, photocopiers, or production machinery, you can take out an equipment loan on the specific items and pay monthly installments, rather than paying everything in one lump sum.

This type of loan is a secured loan, as the equipment you are taking a loan on acts as the collateral, so what you or your business owns is not as risk if you cannot pay the loan.

4. Online Lenders

Online lenders are a relatively new form of financing, and has gained traction thanks to internetization.

Peer-to-Peer Lending

Peer-to-peer lending (P2P) removes the middleman from debt financing. Essentially, it allows individuals to borrow money from others online. This opens up more possibilities for business startup loans for entrepreneurs if you have been denied a bank loan, or do not have enough personal money.

However, P2P lending comes with its disadvantages. The lender does not have much assurance from the borrower, thus interest rates may be higher than other loans.


Crowdfunding is a trendy form of funding for small businesses and entrepreneurs. There has been a boost in crowdfunding in the UK, even surpassing private equity investments. Investment deals have changed focus from late-stage investment to startup and early-stage investments.

Two key types of crowdfunding are equity crowdfunding and rewards-based crowdfunding. The most prominent equity crowdfunding platforms include Seedrs, Crowdcube, Funding Circle, and ThinCats.

Rewards-based crowdfunding platforms include Kickstarter, Indiegogo,, and Crowdshed. They allow individuals or companies to invest in a company or project in return for tangible and intangible rewards.

Unsecured Business Loans

Differences Between Secured and Unsecured Business Loans

When you take out a loan you choose between two basic categories: secured and unsecured business loans. The distinguishing factor between the two is collateral. Collateral is an asset that guarantees the lender that the loan will be repaid, and if it is not, then the collateral will be claimed.

Secured Business Loans

Secured business loans are the most common type of business loan for startup business loans. By taking out a secured business loan, you are guaranteeing the payment with an asset or other kind of collateral.

Unsecured Business Loans

Unsecured business loans are types of loans that do not require a collateral, such as credit card loans. This is typical for smaller amounts of money. In addition, interest rates are normally higher, in order to protect the lender.

Key Differences Between Secured and Unsecured Business Loans
Secured Business Loans Unsecured Business Loans
Includes collateralDoes not include collateral
Lower interest ratesHigher interest rates
Can be small or large sums of moneyGood for small sums of money
Longer repayment termShorter repayment term

Loans vs Grants

When seeking funding for your company, you may consider business startup grants or loans.


You can choose your commercial loan from a range of business startup loans in the UK, ranging from government startups loans, to online lenders, to bank loans.


Business startup grants differ from loans in that you do not need to repay the money. There are many grant schemes in the UK that can be categorised by public or private schemes, by the industry you are operating in, or the region in which your business is located.

It is important to know that applying for a grant can be a time-consuming process and also very competitive, so it is a good idea to have a backup plan in case your business is not selected.

Grants are often given for a specific purpose of your business, so the use of the grant money is regulated by conditions set by the institution providing the grant.

Do You Qualify for a Business Startup Grant?

When you start applying, you will need to have a business plan ready, as well as a financial forecast of your spending, which must include what you will spend the money on, and how much.

    • Your eligibility is determined by:
    • Business type (partnership, limited liability, etc.)
    • Number of employees
    • Location of your business
    • The reason you are taking out a grant
    • The industry in which your business operates

Startup Loans for Women

If you are a female entrepreneur it is important to know your options for business startup loans for your company. Your options can differ to those for male entrepreneurs, so it is important to read about business loans for women before deciding which funding option you choose.

Loans for women

Business Startup Loans for People with Bad Credit

Your credit rating is assessed by the lender when you are requesting a loan. Based on this rating they will either see you in a positive or a negative light. There are bad credit loans available, and there are ways to improve your credit score.

Credit scores range from 300-850, and the higher your score, the better your credit. Your credit is determined by a range of factors, such as timely payments on your invoices, overdrafts, and more. Some online lenders specialise in bad credit loans, so it is still possible to take out business startup loan if you are dealing with poor credit. Business line of credit loans are another viable option.

If you have bad credit, start working on improving it by first requesting a copy of your credit report and correcting any errors, start paying all bills on time, and keep low balances on credit cards.

Finding the Best Loans to Start a Business

There is a lot of information out there about what kind of business startup loan you can choose, so it is imperative to do your research.

All content in this website is for informational purposes only and it does not constitute financial advice and/or recommendations and it should not be relied upon as such.

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