Startup Loans and Grants | What You Need to Know

Trying to find investors can be a long and exhausting process. But if connecting and pitching is feeling like an uphill struggle, remember that VCs and angels aren’t the only way to get funding for your startup. Traditional business loans and grants are options too. In this article, we’ll talk you through the different startup loans and grants available. Let’s get started.

Startup loans from banks

Startup loans let you borrow money for your business and pay it back over time, with interest. It can help you cover the upfront costs of starting your business which you might not be able to afford otherwise.

Banks are an obvious place to get a loan, and most likely the first place you’ll think of. They won’t have any control over your business either, as you won’t have to give up equity in return. That said, they’re not always keen to lend to startups due to the risk involved. You’ll need to bring together a solid business plan and a convincing pitch to be considered.

But before you start the applications, think long and hard about whether a loan is the right choice for you. It’s a bigger personal risk than other forms of startup funding. For example, if you secure the loan against your house, you could lose it if you can’t make the repayments. If your financial projections are off, you might find yourself unable to make the monthly repayments which can leave you stuck in debt. That’ll make any future borrowing difficult, as it’ll look bad on your credit history.

On the other hand, even if you start making loads of money, you won’t be allowed to pay it off early. This means once you’ve got it, you’re stuck with the interest for the whole term of the loan.

If you decide you want to find a bank loan, your best bet is to shop around – both online and in person. Don’t just use the bank you’re already with, as you might be able to get a better deal elsewhere.

Startup loans from governments

Government loans can be a good alternative to bank loans. This is because they’ll often be at lower interest rates, with more flexible terms. For instance, the UK government backed Start Up Loans doesn’t charge you if you pay the loan back early and offers amounts ranging from ï¿¡500 to ï¿¡25,000. Plus, you get business mentorship as part of the scheme.

Government loans for startups do often have to be used in a specific way, and you have to meet certain criteria. For example, they can’t normally be used to pay off existing debt. Some are only given if you haven’t been able to get finance from a bank. And like bank loans, they’re not entirely risk-free. That said, government loans are generally a bit gentler in regards to terms and repayment.

If you’re in the USA, visit Gov.Loans to find out about the options available to you.

For EU businesses, the European Commission handles startup loans.

Government startup grants

Governments will often have schemes in place to help new businesses grow, as they’re a great way to boost the economy and generate new jobs. Some of these will be grants (rather than loans). The best thing about grants is that if you land one of these, you won’t have to pay it back. Plus, you won’t have to give any equity away, like you would with a VC.

Often startup grants will be awarded for specific purposes – for instance, as an incentive to build an environmentally sustainable business, or to generate new jobs for a local economy. Other conditions might include being located in a particular area, being part of a specific industry, or having a certain number of employees. You have to meet these conditions to be eligible and to keep the money.

To apply, you’ll need a business plan, which explains your business and how you plan to scale it. You’ll also need a plan of how you plan to spend the money. This will have to be tailored for each individual grant, as they’re often given to fund certain aspects of a startup.

Of course, it’s not all plain sailing. These grants have their disadvantages too:

• They’re very competitive, so really difficult to get. Demand tends to exceed supply with this sort of funding.
• It can be hard to find one you’re eligible for, as they’re set up with such specific goals in mind.
• The application process can be long and difficult.
• Grants are often for smaller amounts than investment or loans. This means you’ll still have to find other funding somewhere. Often a condition of government grants is that you have to match the grant amount with other funding.

How you’ll find government grants depends on where you’re situated:

• If you’re in the U.S, the U.S Small Business Administration website is a good place to start your search. However, it’s worth noting that very few small businesses are eligible for grants from the federal government, although you may be able to get them from state and local programmes.
• In the UK, your best bet is to visit this page on business finance support. Innovate UK also runs funding competitions for certain sectors.
• EU businesses have access to grants from the European Commission. One example is Horizon 2020.

Non-traditional startup loans and grants

With a bit of digging, you can find loans and grants from nontraditional sources. Here’s a few worth taking a look at:

Loans

FundingCircle: FundingCircle specialises in peer to peer lending for startups. It allows businesses to borrow directly from investors, as well as the government-owned British Business Bank and local councils. It currently operates in the UK, USA, Germany and the Netherlands. Through it, ï¿¡2.5bn has been lent to 25,000 businesses in these locations. The process is a bit easier too – rather than lengthy applications, they say you can get the money in as little as a week!

MarketInvoice: Often, big businesses have a 90 day processing time for invoices, meaning you’ve got to wait for the payment. MarketInvoice lets you auction off unpaid invoices so you get the money straight away. This is a fast, easy way to boost your cash flow and get working capital.

Grants

There are a range of charitable organisations offer grants to startups. Normally, these will be aimed at specific types of businesses or entrepreneurs:

• The Prince’s Trust offers grants and loans to young entrepreneurs to get their ideas off the ground.
• Nesta is a charity that backs startups tackling certain key issues.

You can search more UK-based grants at j4bgrants.

About to start your fundraising round? See the pitch deck we used to raise over $1 million.