1. What Is a Government Loan?
A loan from government refers to funding provided or backed by UK government bodies to support businesses, especially startups and SMEs. These loans usually offer:
- Lower interest rates
- Favourable terms
- Added support like mentoring
2. Start Up Loans (British Business Bank)
This is the most well-known government-backed loan scheme for new businesses.
Features:
- Borrow up to £25,000 per founder
- Fixed 6% interest rate
- 1–5 years repayment term
- Free 12 months of business mentoring
Who can apply?
- UK residents aged 18+
- Starting or trading for less than 3 years
3. Recovery Loan Scheme (RLS)
Introduced to support post-pandemic recovery, the RLS now helps growing businesses access affordable loans.
Features:
- Borrow up to £2 million
- Term loans, overdrafts, asset finance and invoice finance options
- Government-backed up to 70% (lender discretion)
- Interest and fees set by individual lenders
Eligibility:
- UK-based businesses
- Viable before and after Covid-related disruptions
4. Local Council and Growth Hub Loans
Many local authorities offer regional loan schemes to support new or small businesses. These can fund:
- Equipment or machinery
- Premises upgrades
- Job creation
Contact your Local Enterprise Partnership (LEP) or growth hub for specific options.
5. Community Development Finance Institutions (CDFIs)
CDFIs offer ethical, accessible loans to businesses that struggle to get traditional funding.
Benefits:
- Lower barriers for applicants
- Ideal for underserved communities and sectors
- Personalised support
Providers include Fredericks Foundation and Business Enterprise Fund.
6. Innovate UK Grants with Loan Options
While Innovate UK primarily provides grants for innovation, some projects include a repayable finance component.
Target audience:
- Tech, science, and R&D startups
- Innovators solving complex industry problems
7. Student or Graduate Entrepreneur Loans
For recent graduates, schemes like the Start Up Loans or university-linked funds support young entrepreneurs, often in partnership with academic institutions.
8. Applying for a Government Loan
Steps:
- Prepare a business plan and financial forecast
- Check your credit report
- Apply online via the loan provider or government-backed portal
- Attend interviews or assessments (for Start Up Loans)
- Receive funding if approved
9. What Can Government Loans Be Used For?
- Start-up capital
- Equipment and inventory
- Marketing and website setup
- Hiring or training staff
- Working capital
10. Pros and Cons of Government Loans
Pros:
- Competitive interest rates
- Support for underserved entrepreneurs
- Flexible repayment options
- Access to mentoring and guidance
Cons:
- Not suitable for high-risk ventures
- May require a personal guarantee
- Application process can be rigorous
Frequently Asked Questions
Can I get a loan from government to start a business?
Yes. The Start Up Loans scheme is designed for this purpose and is accessible online.
Is the government loan free money?
No. Unlike grants, loans must be repaid with interest.
How long does it take to get a Start Up Loan?
Approval typically takes 2–4 weeks depending on your application’s completeness.
Do government loans affect my credit score?
Yes. Missed payments may negatively impact your credit report.
Can I apply for more than one government loan?
You can’t combine multiple Start Up Loans, but you may be eligible for other schemes like the Recovery Loan or local council funding.
What happens if I can’t repay the loan?
Contact your loan provider immediately. Many offer flexible repayment plans, but you may be personally liable.
Conclusion
Getting a loan from government can give your business the financial boost it needs to start or grow. Whether it’s through Start Up Loans, recovery schemes, or local initiatives, government-backed funding is a reliable, accessible option for UK entrepreneurs.