Written by the Lendus editorial team. Last updated .
A business start up loan can come from several very different sources: the government-backed Start Up Loans scheme (£500 to £25,000, fixed rate, no trading history required), a bank or specialist lender's own start-up lending product, asset finance, a director's loan into the company, or non-repayable grants from bodies like Innovate UK. Which one fits depends on how established your business is, how much you need, and how quickly you need it. Government backing is only one route among several, not the whole market.
Search for “business start up loan” and most results point straight at the government’s Start Up Loans programme. That scheme is genuinely worth knowing about, and we cover it in full in our dedicated Start Up Loans guide, but it’s one route among several, not the entire market. Depending on your business’s stage, sector, and funding need, a bank, a specialist alternative lender, an asset finance provider, or even a grant body might be a better fit than the government scheme.
This guide sits above the scheme-specific ones and compares the actual landscape a founder is choosing between.
Delivered by the British Business Bank, this is a personal loan of £500 to £25,000 per founder (up to £100,000 across a business with several co-founders), at a fixed interest rate, repaid over 1 to 5 years, with free mentoring included. It doesn’t require existing trading history, which makes it one of the few routes genuinely open to a pre-revenue business.
The trade-offs are speed and ceiling. The application involves building a business plan with an adviser and typically takes several weeks from start to funds landing, and £25,000 per founder is a hard limit regardless of how strong the plan is. It’s also, legally, a personal loan rather than a business loan, so the debt and the credit consequences of non-payment sit with you individually, not with the company.
It’s worth being clear on one point that trips a lot of founders up: “government-backed” describes a guarantee arrangement, not government funding. The government guarantees part of a defaulted loan to the lender, not to you, and you remain fully liable for the whole debt regardless of any guarantee sitting behind it. This applies across every government-backed lending scheme, not just this one.
A number of high-street banks and specialist alternative lenders offer their own start-up or early-stage lending products, entirely separate from the government scheme. These are true business loans, made to the company, and typically require at least some trading history, often a few months of bank statements or early revenue, even where the headline product is marketed at “start-ups.”
Rates are higher than the fixed government rate, reflecting the lender’s own risk assessment rather than a government guarantee, but the process is usually faster (sometimes same-day or within a few working days for smaller unsecured amounts), and there’s no fixed £25,000 ceiling. This route tends to suit a business that’s already generating some revenue and needs more capital, or needs it faster, than the government scheme can provide.
If your start-up capital is going toward a specific piece of equipment, a vehicle, or machinery rather than general working capital, asset finance can be more accessible than an unsecured loan even with very little trading history, because the asset itself secures the borrowing. Hire purchase and leasing structures spread the cost over the asset’s useful life, and approval often depends more on the asset and the deal structure than on the strength of your trading record. This is worth considering specifically when the funding need is a defined purchase rather than general cash flow.
Many UK start-ups are funded, at least in part, by the founder lending personal money into the company as a director’s loan, rather than through any external lender. This isn’t a “product” in the way the other routes are, but it’s a genuine and common route worth naming, since it avoids external credit checks and interest entirely. The trade-off is that it puts personal funds directly at risk and needs proper documentation (a director’s loan agreement, correctly recorded in the company’s accounts) to avoid tax and compliance complications later. It’s generally used alongside, rather than instead of, one of the borrowed-money routes above.
Grants are the only route on this list that doesn’t need to be repaid, which makes them attractive, but they come with real constraints. Funding bodies such as Innovate UK support innovation-led projects through competitive grant calls, and many local areas have growth hubs or Local Enterprise Partnership schemes offering smaller grants to businesses that meet specific local or sectoral criteria. Award decisions are made competitively against a written application, not as a straightforward credit decision, and amounts and availability vary significantly by scheme, sector, and region. Grants are worth researching in parallel with a loan application, not as a guaranteed substitute for one, since timelines and outcomes are less predictable.
A few questions tend to narrow this down quickly:
Because the government scheme dominates search results for start-up funding, it’s common to see commercial lenders and brokers describe their own products as “government backed” when what they actually mean is something looser, such as being an accredited lender under the separate Growth Guarantee Scheme (which is aimed at established businesses, not start-ups), or simply that the lender is regulated by the FCA. If a lender’s marketing uses “government backed” language, it’s worth asking specifically which scheme they mean and what the guarantee actually covers, since the term gets used more loosely in advertising than its strict meaning would suggest. A genuine government guarantee always sits between the lender and the government, protecting the lender if you default; it never reduces what you personally owe.
These options aren’t mutually exclusive. It’s common for a start-up to combine a Start Up Loan with a smaller amount of personal or director investment to bridge the gap up to what’s actually needed, or to use asset finance for a specific piece of equipment alongside a general working capital facility for day-to-day costs. Lenders will generally want to know about other borrowing and funding sources when you apply, so it’s worth having a clear picture of the full funding stack, not just the single loan you’re applying for, before you start.
Lendus is an introducer, not a lender, a credit broker, or a delivery partner for the government’s Start Up Loans scheme or the Growth Guarantee Scheme. We work across the commercial lending market to help match a business’s funding need to the type of finance most likely to fit it, government-backed or otherwise. If a government scheme looks like the better fit for your circumstances, we’ll say so and point you toward it directly rather than steering you toward a commercial product that isn’t the right answer for your stage of business.
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