What are your long-term plans for your start-up? Sell in five years? Float in three?

Well, before any of that happens, you’ll need enough cash to bring together a team, develop your product, and bring it to market. That’s no mean feat when you’re not yet generating revenue.

Fortunately, you’ve got a few options. And start-up loans are one of the best places to start.

What is a start-up loan?

A start-up loan is a loan used to fund an early-stage business. They’re most commonly given by the government to help younger businesses get started and find a route to profitability.

Many businesses use their start-up loan to hire their first employees, take a lease on their first office, and buy the tools they need to create their product. In other words, all the things you need to do before you can start attracting customers.

However, some early-stage, revenue-generating businesses also benefit from taking out a start-up loan. They’ll typically use the funds on customer acquisition, buying inventory, or expanding the team instead.

How can you grow your business with a Start-up Loan?

If you’re getting ready to launch, there’ll be a number of one-off costs you’ll have to find the cash for.

According to online shopping platform Shopify, small business owners spend an average of $40,000 in their first year of business in the States. In Britain, it’s £22,756.

That cost is generally spread across:

  • letting the world know you exist
  • hiring freelancers, remote workers and your first employees
  • leasing an office
  • purchase stock, tools, equipment

The capital you need adds up quickly and - because there’s no revenue from sales coming in- it can be really tough to get started. 

For companies preparing to open their doors, start-up business loans provide the funding these companies need to get off the ground. 

But what if you’re already trading?

For online businesses, you’ll get some cash from your customers up front, however, it may not be enough to invest back into the business to help you reach your goals.

Either way, between paying staff, suppliers and the taxman, in these early days you’ll always feel as though you’re bootstrapping.

Repaying the government, the bank, or another finance provider up to about 6% of what you lend each month for a couple of years won’t sound so bad.


What are the advantages of getting a start-up loan?

First up, every business depends on readily available cash. In fact, less than half of UK businesses survive their first five years, mostly due to cashflow issues.  

After those first five years, the businesses left standing have this in common: 

  • they’ve become established in their market
  • subscription revenues or revenues from repeat sales build up
  • management teams get better at managing fluctuating sales

Having the extra cash in your account from a start-up loan gives you the breathing room you need to take risks and focus on developing what makes your business unique.

Secondly, a start-up loan can provide you with the funding you need to go up against your competitors and convincingly market to the target markets you share with them.

Third, you’ll get better deals from suppliers and contractors. The bigger the orders you’re willing to commit to, the more likely suppliers and contractors are to offer you significant price discounts. In the short term, that gives you the chance to make more money from each sale.

And finally, you get to keep total ownership of your business at a very early, very crucial stage. That can make it a whole lot more attractive than taking angel investment.

What are the disadvantages of a start-up loan?

First of all, start-up loans are quite difficult from traditional lenders without a really strong business case. If you’re not able to prove you can generate revenue, you’re unlikely to land the funding.

However, there are many start-up and microloan schemes around the world which have a lower bar to entry. These are much easier to get a hold of, but they tend to be personal loans.

That means if your business doesn’t succeed, you’ll be personally liable for repaying the debt in full. If you don’t repay the debt, your credit score will suffer, so successfully applying for other loans or mortgages will become a lot more difficult.

Second, making repayments on a start-up loan puts pressure on your cash flow. Your lender expects you to repay them on time and in full. That’s fine if you’re maintaining healthy profit margins but it’s much harder to manage if turnover falls or your costs rise.

When deciding how much you want to borrow, you need to assume the worst case scenario. With traditional funding like a loan, secured credit, or a credit card, you should only take what you need and choose the longest possible time to repay. 

What types of Startup Loan are available?

State-backed start-up loans

Many governments around the world provide debt funding to start-ups and companies with 2 years’ trading or less through a state bank or enterprise fund.

Offering funds similar to an annual salary, applications for credit must pass a committee and, depending on where you are in the world, it can take up to 3 months before you see the money.

Repayments usually take place between 1-5 years with interest rates usually set at about 6%.

In most countries, the loan is issued to an individual who is responsible for transferring the money into their business account. If the business fails, then it is the responsibility of the borrower to repay the loan.

Start-up loans from the bank

Banks and other finance providers offer start-up loans, too. Although these are typically an extension of their small business loans.

To broaden the appeal of their small business loans, many have dropped minimum turnover requirements and don’t need to see a trading history.

However, they charge significantly more APR, usually between 6-15%, and they are reluctant to give away more than $50,000

Alternatives to getting a start-up loan

Revenue-based finance

Very well suited to ecommerce, SaaS, and other online businesses, revenue-based finance offers a twist on the traditional bank loan.

Start-ups take a loan between $10,000 and $5m, and pay back a flat fee between 6-12% as they start to make the money back. So, if you wanted to borrow $50,000, in total you’d repay between $53,000 and $56,000.

As part of the agreement, you give the provider access to your business’s back-end tools like Shopify and QuickBooks. They’ll use information from this software to determine how much you’ll repay in a given month.

To qualify, most lenders want to see six months’ trading and a minimum of £10k in sales each month, although newer entrants to the market are setting lower barriers for a higher cost of capital.

Credit cards

Up to 53% of companies use credit cards to fund their business spending.

Many banks offer new business clients a brand new credit card when they open a bank account, often with a very low limit of $1,000-$2,500, which is often not that useful.

This leads some entrepreneurs to use the much higher balances they’ve built up on their personal credit cards to make purchases instead.

In general, personal credit card limits tend to be much larger than business card limits, giving business owners more cash and greater flexibility. But they’re hardly a sustainable way to grow a business...


Microloans are an important source of start-up funding in North America, but they’re less well-known in Europe.

Microloans offer borrowers the ability to borrow the equivalent of up to 6 months’ national average wage to be settled over up to 3 years with a fixed monthly repayment.

They may be used by small businesses to meet unexpected costs or to invest in training.

In most cases though, they are mainly used as seed capital to develop an unproven concept or model before talking to an angel investor.

Angel investment

Angel investors take a share of your company in exchange for their investment and advice. They’ll probably be excited about the longer-term vision for your company and will want to be an active part in helping you get there.

They introduce, on average, between $100,000 to $250,000 although that might rise to $1m for some ideas. In return they’ll look to share an equity stake of between 20-25% with other investors.


Crowdfunding is a lot like angel investment but, instead of a handful of investors, you have hundreds, each of whom pledges a small amount in either return for shares or for non-share rewards.

Sums raised by crowdfunding firms range from a few thousand dollars to a few million dollars.

Unlike with angel investment, your backers do not take a seat on the board, nor do they get a say over the day-to-day running of your company.

Invoice factoring

Invoice factoring companies purchase the invoices you’ve issued to clients that have not yet been paid.

These companies usually work with other B2B companies, where invoices are significantly bigger in size.

Your factorer will set you a monthly limit, normally equivalent to 1-2 months’ turnover. As your turnover increases, your factorer will raise your limit.

For companies selling to consumers via an online platform (like Amazon), you can forward the invoice directly to your invoice factoring company.

If you do that, you’ll get paid up to 90% of the value of the invoice the following day and the remainder - minus a facility fee of around 3% - when the platform settles up.

Stock loan

Stock loans allow you to purchase the stock you need to sell to your customers via online platforms like eBay, Amazon, Walmart, and more.

With them, you can usually borrow up to 140% of your average monthly receipts via these platforms.

So, if you sell $50,000 a month worth of stock on Amazon, a stock loan provider may offer you up to £70,000 to purchase new stock.

As with revenue-based finance, the amount they collect in repayments depends on your turnover meaning that you have some breathing room on slower months.

The cost of capital on stock loans tends to be higher than with revenue-based finance, however.

Asset-based finance

You can use asset-based finance to rent the equipment your business needs to create more, better-quality products.

If you’re looking to invest in IT equipment, this might not be the best option for you. Instead you’ll want to take out asset-based finance against equipment that doesn’t lose its value so quickly, like manufacturing and production equipment. 

Because the finance is secured on the asset, you can borrow $50,000 or more. It depends on the value of the equipment you hire, but you’ll have to prove to your lenders that you’ll be able to meet the fixed monthly repayments.

Secured credit

With this secured credit, your lender takes a personal guarantee against your home. You can borrow up to the value of your equity in the property, however you risk losing your home if your plans don’t work out.

Can I get a start-up loan with bad credit?

Having a poor credit history makes it more difficult to find a start-up loan.

If you have equity in any property you own, you should find it easier to raise money this way, however if your business fails there are significant risks...

If you have poor credit, you are more likely to receive funding from a state-backed lender, an asset finance lender, angel investor, or revenue-based finance provider instead.

Should you get a start-up loan?

It's often more a question of when you should get a start-up loan.

Many small businesses can't afford to act slow, and getting cash in helps you build the products you need to take on the market, along with the runway you need to make it happen.