Starting a business is an exciting venture, but it often comes with financial challenges. If you’re a startup in the UK, securing the right business loan can provide the necessary capital to get your idea off the ground. In 2025, a variety of small business loan options are available, whether you need working capital, equipment financing, or funds to expand.
This guide will explore the best small business loans for startups in the UK, comparing interest rates, loan amounts, eligibility requirements, and other crucial factors to help you find the best fit for your needs.
🔍 Types of Small Business Loans for Startups in the UK
1. Term Loans
A term loan is a traditional small business loan where you borrow a fixed amount of money and repay it over a set period with regular payments. This option is best suited for businesses looking for substantial capital for long-term investments like equipment or property.
- Loan Amount: £1,000 – £500,000
- Repayment Term: 1–5 years
- Interest Rates: Typically 4% – 30%
2. Overdrafts
An overdraft allows you to borrow money up to a certain limit, which can be a great option for businesses needing short-term liquidity. Overdrafts are often used for daily operations and to cover unexpected expenses.
- Loan Amount: £500 – £25,000
- Repayment Term: Revolving credit
- Interest Rates: Typically 8% – 12%
3. Invoice Financing
Invoice financing, also known as factoring, allows startups to borrow money against the value of their outstanding invoices. This can provide immediate cash flow without waiting for customers to pay.
- Loan Amount: Varies based on invoices
- Repayment Term: Short-term (up to 3–6 months)
- Interest Rates: Typically 2% – 5% per month
4. Government-Backed Loans (Start Up Loans)
The UK government offers Start Up Loans to new businesses. These loans are designed for businesses that are less than 2 years old and offer low interest rates, making them an excellent option for startups.
- Loan Amount: £500 – £25,000
- Repayment Term: 1–5 years
- Interest Rates: 6% (fixed)
5. Peer-to-Peer (P2P) Lending
Peer-to-peer lending platforms match businesses with individual investors who are willing to fund your loan. This can be a good option if traditional banks are not an option for your startup.
- Loan Amount: £1,000 – £250,000
- Repayment Term: 1–5 years
- Interest Rates: 5% – 20%
🏆 Best Small Business Loans for Startups in the UK (2025)
1. Funding Circle
- Loan Amounts: £10,000 – £500,000
- APR: 4.9% – 27.6%
- Loan Term: 6 months – 5 years
- Eligibility: 2+ years in business, £50,000+ annual revenue
- Key Feature: Flexible repayment terms and fast approval process
Best For: Startups looking for medium-term loans with competitive interest rates.
2. Startup Loans UK
- Loan Amounts: £500 – £25,000
- APR: 6% (fixed)
- Loan Term: 1 – 5 years
- Eligibility: Must be in business for less than 2 years, with a business plan
- Key Feature: Government-backed loans with lower interest rates and mentoring support
Best For: New businesses that need lower interest rates and additional support.
3. Capital on Tap
- Loan Amounts: £1,000 – £500,000
- APR: 8% – 24%
- Loan Term: Revolving credit (short-term)
- Eligibility: 1+ years in business, £50,000+ annual revenue
- Key Feature: Flexible business credit cards and cash flow options
Best For: Startups seeking flexible lines of credit for short-term working capital needs.
4. Iwoca
- Loan Amounts: £1,000 – £200,000
- APR: 2.5% – 7.5% per month
- Loan Term: 3 – 24 months
- Eligibility: 1+ years in business, £25,000+ annual revenue
- Key Feature: Fast funding with a simple online application process
Best For: Startups needing quick, short-term funding with easy eligibility requirements.
5. Funding Options
- Loan Amounts: £500 – £500,000
- APR: 5% – 25%
- Loan Term: 1 – 5 years
- Eligibility: No specific requirements for age, but some lenders may require a minimum revenue
- Key Feature: Compares a variety of lenders to find the best deal for your startup
Best For: Businesses looking to compare multiple loan options and choose the best fit.
📊 Comparison Table
| Lender | Loan Amount | APR | Loan Term | Eligibility | Key Feature |
|---|---|---|---|---|---|
| Funding Circle | £10,000 – £500,000 | 4.9% – 27.6% | 6 months – 5 years | 2+ years in business | Flexible repayment terms |
| Startup Loans UK | £500 – £25,000 | 6% (fixed) | 1 – 5 years | Less than 2 years in business | Government-backed, mentoring support |
| Capital on Tap | £1,000 – £500,000 | 8% – 24% | Revolving credit | 1+ years in business | Flexible business credit cards |
| Iwoca | £1,000 – £200,000 | 2.5% – 7.5%/month | 3 – 24 months | 1+ years in business | Fast funding, simple online application |
| Funding Options | £500 – £500,000 | 5% – 25% | 1 – 5 years | Varies by lender | Compares multiple lenders |
✅ Tips for Securing Small Business Loans for Startups
- Prepare a Solid Business Plan: Lenders want to see that you have a clear vision and strategy for your business. A well-thought-out business plan can help you secure a loan.
- Check Your Credit Score: Even though many lenders don’t require excellent credit for startup loans, a better credit score can help you secure a loan with a lower interest rate.
- Be Realistic About Your Loan Amount: Only borrow the amount you need to avoid overleveraging your business.
- Compare Lenders: Different lenders offer different terms, interest rates, and repayment schedules. Take time to compare options to find the best deal.
- Prepare Financial Statements: Lenders may require financial statements such as profit and loss statements, balance sheets, and cash flow projections to assess your startup’s financial health.
🧠 Final Thoughts
Securing a small business loan for your startup can be the key to turning your ideas into a thriving business. In the UK, options like Funding Circle, Startup Loans UK, and Iwoca provide tailored solutions for startups in 2025. Before applying, make sure to assess your business’s financial needs, compare lenders, and ensure that the loan terms align with your growth plans.
FAQs
Q. Can I get a business loan as a startup with no credit history?
Yes, certain lenders like Startup Loans UK and Iwoca offer financing options specifically designed for new businesses with limited or no credit history.
Q. How quickly can I receive funding?
The approval process varies by lender. Some lenders, like Iwoca, offer quick funding within a few days, while others may take a few weeks for approval and disbursement.
Q. Are there any government grants for startups in the UK?
Yes, the UK government offers grants and funding programs, including the Start Up Loans scheme, to help new businesses get started with financial support.