Starting a business usually involves spending money before you have started bringing much in.
You may need equipment, premises, furniture, technology, stock or a full fit-out before you can open your doors and begin generating revenue.
This is where funding can help.
However, getting a business loan for a start-up is not always as straightforward as borrowing money for an established company. Without accounts or a proven trading history, lenders have less information available to assess how the business will perform.
That does not mean funding is impossible.
It means you need to understand which types of start-up finance are realistic, what lenders will look for and how to present your plans properly.
Can you get a business loan for a start-up?
Yes, start-up businesses can sometimes access finance.
The options available will depend on:
- What the money will be used for
- How much funding you need
- Whether the business has started trading
- Your personal credit history
- Your experience within the industry
- Whether you are willing to provide a personal guarantee
- The strength of your business plan and financial forecasts
A large unsecured business loan may be difficult to obtain when a company has no trading history or income.
Equipment finance can sometimes be a more realistic route because the funding is connected to identifiable assets being purchased for the business.
There is also a government-backed Start Up Loan scheme, which is separate from the commercial finance options arranged by Johnson Reed.
Start-up business loans and Start Up Loans: what is the difference?
The terms sound similar, but they do not always mean the same thing.
A start-up business loan is a general term for finance used to establish or develop a new business. Depending on the provider and the needs of the business, this could include a commercial loan, asset finance, equipment leasing or another form of business funding.
A Start Up Loan, with capital letters, refers specifically to the government-backed Start Up Loans scheme.
The official Start Up Loan is an unsecured personal loan used for business purposes. This means the individual applying for the loan is personally responsible for repaying it.
It is not a grant, and the loan is not taken out solely in the name of a limited company.
Eligible applicants can currently apply for between £500 and £25,000. Where a business has several eligible owners or partners, each person may apply separately. However, no more than £100,000 can be lent to the same business in total over its lifetime.
The scheme also provides free application support and 12 months of mentoring for successful applicants.
Applications for the government-backed scheme are made through the official Start Up Loans service. This is separate from the equipment and asset finance arranged by Johnson Reed; however Johnson Reed can also help you access government-backed funding through using the Government-growth scheme. To find out more you can read here.
What funding options are available to start-ups?
There is no single type of finance that works for every new business.
The right route will depend on what you need to pay for and how much responsibility or ownership you are prepared to give up.
Government-backed Start Up Loans
The government-backed Start Up Loan scheme may be suitable for founders who need a relatively modest amount of money to establish or grow a business.
The money can be used for eligible business purposes, subject to the rules of the scheme.
Because it is a personal loan, the applicant remains personally responsible for the repayments even though the money is being used by the business.
Applicants must pass credit and affordability checks and will normally need to provide a business plan, cash-flow forecast and personal survival budget.
Equipment and asset finance
Equipment finance helps a business acquire the assets it needs without paying the full cost upfront.
The funder normally purchases the equipment from the supplier, and the business makes regular payments over an agreed term.
Equipment finance may be used for:
- Gym and fitness equipment
- Pilates reformers
- Commercial kitchen equipment
- Construction machinery
- Manufacturing equipment
- Vehicles and vans
- IT hardware and software
- Medical and beauty equipment
- Office equipment
- Retail fixtures
- Specialist tools and machinery
It may also be possible to include delivery, installation and certain fit-out costs, depending on the project and the lender.
For new businesses, equipment finance can sometimes be more achievable than an unsecured cash loan because the lender can clearly see what is being purchased and how it will be used.
Approval is not guaranteed, and a deposit or personal guarantee may still be required.
Hire Purchase
Hire Purchase may suit a start-up that wants to own its equipment eventually.
The business normally pays a deposit followed by regular monthly payments. Once all agreed payments and any applicable final fee have been made, ownership transfers to the business.
This can work well for equipment with a long useful life, such as:
- Manufacturing machinery
- Construction equipment
- Commercial vehicles
- Engineering equipment
- Agricultural machinery
The lender will consider the equipment alongside the strength of the business plan and the people behind the company.
Equipment leasing
Equipment leasing allows a business to use equipment without purchasing it outright at the beginning.
The lender owns the equipment, while the business pays to use it over an agreed period.
Leasing can help a start-up preserve more of its initial cash for other costs, such as recruitment, stock, premises and marketing.
What can start-up equipment finance be used for?
At Johnson Reed, we are generally best placed to help new businesses that need to purchase identifiable equipment or assets.
For example, a new Pilates studio may need:
- Reformers
- Studio furniture
- Mirrors
- Flooring
- Lighting
- Reception equipment
- Booking and payment technology
A new gym may need:
- Strength and cardio equipment
- Flooring
- Changing-room equipment
- Access-control systems
- Reception furniture
- Signage and technology
A hospitality business may require:
- Ovens
- Refrigeration
- Extraction systems
- Coffee machines
- Furniture
- EPOS equipment
- Fixtures and fittings
Rather than paying for everything at once, eligible costs may be spread over an agreed term.
Not every part of a project will necessarily qualify for asset finance. We will need to understand exactly what is being purchased before confirming what may be included.
What do lenders look for in a start-up application?
Without previous company accounts, lenders will usually look more closely at the founders, the business plan and the proposed use of the equipment.
Relevant experience
Previous experience within the sector can make a significant difference.
A first-time business owner who has spent several years managing a similar business may present a stronger case than someone entering an unfamiliar industry with no practical experience.
Make it clear what you have done before and how that experience prepares you to run the new business.
Personal credit history
For a newly established business, the directors’ personal credit profiles are often important.
Lenders may carry out personal credit checks and look for missed payments, defaults, County Court judgments or other financial commitments.
A credit issue does not always make finance impossible, but it may reduce the number of available options.
Personal investment
Lenders will usually want to see that the founders are investing some of their own money into the project.
This may be used towards a deposit, initial stock, professional fees or other launch costs.
The required contribution will depend on the lender, equipment and overall strength of the application.
A clear business plan
Your plan should explain:
- What the business will sell
- Who its customers will be
- Where it will operate
- How it will attract customers
- What makes it different
- What the initial costs will be
- When it expects to begin generating revenue
- How the finance repayments will be covered
It does not need to be packed with management jargon.
It needs to show that you understand the business, the market and the costs involved.
Realistic financial forecasts
A cash-flow forecast should show the money you expect to receive and the costs you expect to pay each month.
Lenders are unlikely to expect a new business to predict every figure perfectly. They will, however, want to see that the assumptions are sensible.
Allow for:
- Rent and business rates
- Wages
- Utilities
- Stock and materials
- Insurance
- Marketing
- Software and subscriptions
- Finance repayments
- Tax
- Unexpected costs
- Seasonal changes in income
It is better to provide cautious, explainable figures than overly ambitious projections with little evidence behind them.
Supplier quotations
For equipment finance, you will normally need a formal quote from the supplier.
This should clearly show:
- The supplier’s details
- The equipment being purchased
- Individual prices
- VAT
- Delivery or installation costs
- The total amount required
The lender may also consider the supplier, equipment type, expected lifespan and potential resale value.
Can a start-up get finance without any revenue?
Potentially, but the options are more limited.
A business with no revenue cannot rely on previous trading performance to support its application. The lender may therefore place greater emphasis on:
- The directors’ experience
- Personal credit history
- Personal income and commitments
- The deposit available
- The business plan
- Financial forecasts
- The type and value of the equipment
- A personal guarantee
- Homeownership or other supporting security
Finance is assessed individually, and meeting one of these criteria does not guarantee approval.
A new business should also be careful not to borrow more than it can realistically afford. Finance should support the launch rather than leave the business under pressure before it has had time to establish itself.
Do start-up loans require a personal guarantee?
A personal guarantee may be required for commercial start-up finance.
This is an agreement under which a director accepts personal responsibility for the debt if the business cannot meet its obligations.
Whether a guarantee is needed will depend on:
- The lender
- The finance amount
- The equipment
- The deposit
- The directors’ circumstances
- The overall strength of the application
The government-backed Start Up Loan works differently because it is already a personal loan taken out by the individual applicant.
Make sure you understand any personal responsibility before signing a finance agreement.
Can sole traders apply?
Sole traders may be eligible for some funding routes, including the government-backed Start Up Loan scheme.
However, many commercial equipment finance lenders have different criteria for sole traders, partnerships and limited companies.
Johnson Reed is generally better placed to help limited companies purchasing business equipment and assets.
Speak to our team before submitting an application so we can tell you whether your business structure and project are likely to fit the available lending criteria.
How long does start-up finance take?
Timescales vary considerably.
A straightforward equipment finance application with a clear supplier quote and all supporting documents ready may be processed relatively quickly.
More complex applications can take longer, particularly where:
- A large amount is required
- Several suppliers are involved
- The project includes a full fit-out
- Additional financial information is needed
- A valuation or further security is required
- The business has not yet been incorporated
- Planning permission or premises agreements are still outstanding
Providing accurate information at the beginning can help avoid unnecessary delays.
Do not commit to an opening date or pay a non-refundable supplier deposit until you understand whether the funding is likely to be available.
How Johnson Reed helps new businesses
Johnson Reed has been helping UK businesses finance equipment and growth plans for more than 25 years.
For start-ups, our main area of expertise is asset and equipment finance.
We take the time to understand:
- The business you are creating
- Your industry experience
- The equipment you need
- The amount you are investing personally
- How the equipment will help generate revenue
- When the business expects to begin trading
We can then assess whether the project is suitable and approach lenders with an appetite for new-start equipment finance.
We will not pretend that every new business will qualify.
Some applications will require a larger deposit, stronger security or more evidence before a lender is comfortable proceeding. In other cases, a government-backed Start Up Loan or another source of funding may be more appropriate.
Our job is to explain the available route clearly and help you understand what is realistic.
Apply for start-up equipment finance
Planning to open a gym, Pilates studio, restaurant, salon, retail space or another equipment-led business?
Send us:
- A brief overview of your plans
- Your equipment or supplier quote
- The amount you want to finance
- Your expected opening date
- Details of your relevant experience
- The deposit available
Our team will review the information and let you know whether we may be able to help.
Speak to Johnson Reed about start-up equipment finance today.ur options, we’re here to guide you. Get your free quote today.
