Start Up Loans: Age Limit Removed

Start Up Loans (SUL) – the government scheme for new businesses – have been extended and can now be claimed by anyone over the age of 18. The initiative has been piloted with young people aged 18-30 for the past 12 months, lending £42 million to 8,000 businesses.

What’s on offer

The StartUp Loans Company says they “lend on the basis of need.” They don’t mention an upper or lower limit, but the average loan size is £5,400.  They have examples of £10,000 loans on their website. The final amount needs to be fully supported by a business plan.

• The interest rate is currently 6% and the loan is repayable within 1-5 years.
• You may be able to negotiate a repayment holiday, that is a break where you only pay interest and not capital repayments, if it’s going to take some time to build up the business in the early days.
• You’ll get support from a local delivery partner to help you get your business plan in shape and you’ll be allocated a mentor to help you with the business after you get the loan.

What else you need to know

• The delivery partners get commission on your loan. It can be up to 20%. There have been high-profile criticisms of “overly aggressive promotion” of startup loans.  Youth entrepreneurship expert, Matt Smith says: “the default response when a young person expresses an interest in launching a business is now “great, take a loan”. This propaganda is so overpowering, that we risk making young people believe that the only way to launch a business is to take a SUL.”

• If you are unemployed and claiming Job Seekers Allowance (JSA) it is highly probably that you will have to sign-off if you take out at Start Up Loan.

• The SUL is a better deal that the New Enterprise Allowance loan. The NEA is capped at £1,000, with a higher interest rate than a SUL.

• You cannot access support from both SUL and the NEA, they are mutually exclusive programmes of support and the elements are not inter-changeable.

•  A Start Up Loan is a personal loan, so any liability for non-repayment lies with you as an individual. It is not clear from the SUL company information to what extent missed payments or defaults will affect your credit record, but it would normally be likely.

Are you eligible?

• Are you aged over 18 at the time of application?

• Are you planning to start a business? Or if you have already started have you been trading for less than 12 months?

• Do you live in England, Northern Ireland or Wales? And do you have the legal right to remain there and to be self-employed, for the duration of your loan term and the right ? (The scheme is due to be extended to Scotland).

Do you really need a Start Up Loan? 

As Matt Smith points out, in fact lots of businesses really don’t need a loan at all. With new technology it is now possible to start a business with very little or no money. So when you have completed your business plan, go through every figure and ask yourself ‘could I do this for less money or for free’. Don’t lumber your new business with any more costs than it absolutely needs. The best time to get finance for your business is often not at the very start, but when you have established your market with a few customers.

If you are currently on JSA, then it may make more sense to establish the business in your spare time and be ready to come off JSA when you have a solid order book in place. Remember as soon as you take out a SUL your JSA stops and you will be dependent on income from your business to live on.

Make sure that you also get support and advice from independent organisations that are not directly linked with SUL. There is a lot of free support and advice out there for young people starting in business: most colleges and universities now have enterprise education teams. For others there is the Prince’s Trust, Shell Livewire.

If you are sure that you do need a loan for your business, then the SUL is a very good deal. The low interest rate is hard to beat and, combined with repayment holidays, business support and mentoring, it’s a powerful package that could get your business off to a great start. To find out more about how you can apply for a Startup Loan click here.