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SMALL-BUSINESS MINISTER KEVIN HOLLINRAKE (LEFT) VISITS RAMEN ELECTRA FOUNDER JAMES FRASER, WHO RECEIVED THE 100,000TH START UP LOAN

A state loan for start-ups

The British Business Bank offers competitive unsecured rates for founders

When the owners of St Albans-based noodle shop Ramen Electra decided it needed financing to fulfil its potential, they hadn’t expected a visit from a government minister. But as the recipient of award number 100,000 from the Start Up Loans scheme, the government-backed initiative aimed at new businesses, Ramen Electra got some helpful publicity when small-business minister Kevin Hollinrake turned up to mark the moment.

Ramen Electra started up during the pandemic lockdown, serving takeaways through the window of a local pub, The Beehive. Then, in the aftermath of the pandemic, founder and chef James Fraser decided to make a full-time go of the new venture and serve meals six days a week as the pub’s main food offering. Earlier this month, the business received £6,000 from the Start Up Loans Scheme to invest in new kitchen equipment, as well as marketing materials.

A DECADE OF SUPPORT

It’s the sort of story that has become commonplace since the launch of the scheme just over a decade ago, but many would-be entrepreneurs are unaware of what is available. The scheme, which is administered by the British Business Bank, offers personal loans to people looking to start a brand new business or to expand an existing business that has been trading for less than 36 months. The cash can be used for more or less any business purpose – from renting premises or buying stock to funding marketing materials.

“FOUNDERS CAN BORROW UP TO £25,000 EACH AT 6% INTEREST”

Business founders can borrow between £500 and £25,000 each – the average loan size is around £9,300 – with the money repayable over a term of between one and five years. There are no arrangement fees, but interest is charged at a rate of 6% a year – competitive compared to financing for start-up businesses provided by banks and other lenders.

However, importantly, the loans are unsecured, so you don’t need to put up any personal or business assets as collateral. You also don’t need a guarantor to access the scheme.

Applications aren’t guaranteed to succeed. The British Business Bank assesses borrowers on the basis of their credit histories and their ability to repay, since the loans are personal loans rather than lending to the business. It also makes an assessment of viability, so applicants are expected to provide a business plan and a cashflow forecast.

However, the scheme offers support for business founders who have never put together such documents before, including online templates that you can use to pull the information required together. It also offers a range of support and mentoring services once your loan has been approved and you’re running the business.

FURTHER FUNDING TO GROW

The scheme also offers additional loans – if you need further support to expand, for example, or to exploit a new opportunity. These also come with a 6% interest rate and your total outstanding balance to the scheme cannot exceed £25,000. So if, say, you borrowed £10,000 through your first loan and you have repaid £2,000, you could apply for new financing of up to £17,000.

Note also that each founder of a business is entitled to apply for their own loan. So, if you’re co-launching a business, you’ll have access to a larger amount of capital. The only caveat is that the Start Up Loans scheme won’t advance more than £100,000 to any one business.