How can I borrow money to start my business?

Starting a business is exciting. But without the right financial support, you could struggle to get started. A lack of trading and credit history can make people worried about borrowing money to start a small business. But there are plenty of funding options, from bank loans and private investments to government grants.

If you’re considering borrowing money to start a business, there are some things to consider to give you, and your business the best chance of success. 


Getting started

Personal savings and support from family and friends can be options when starting a business, however many start-ups still need external funding.

Here are some things consider to make your business as attractive as possible:


Drawing up a business plan

A business plan is a concise summary of your company’s purpose and long-term vision. This document tells investors and lenders why they should take a risk on you, using detailed strategies and evidence-backed claims. It could also include financial projections, product details and competitor analysis.

Your plan allows you to flag any sustainability ambitions too. This may open the door to more grant or funding opportunities.

card in thinking bubble

Preparing for repayments

Repayments are vital to consider when researching how to get a loan to start a business. Think carefully about what you could realistically afford to pay back each month. Missed repayments can damage your credit rating and potentially your business.


Budgeting for different costs

Accuracy is key to effective business borrowing. Realistic estimates  should help you pin down your exact needs and avoid overstretching your budget. For example, how many employees do you hope to take on? And how do your financial forecasts stack up against potential overheads?

credit card

Understanding your business credit score

A business credit score  is a number from zero to 100 that credit agencies and lenders use to track your reliability with money. Improving this score could boost your creditworthiness and ability to borrow cash.


Understanding cash flow

Cash flow is another important factor to consider when it comes to start-up funding. It may influence decisions like how much you can borrow to start a business.

In the business world, cash flow shows the balance of money heading into and out of a company at a specific point in time. It offers a quick snapshot of your financial position for lenders and investors.

A positive cash flow means your income is greater than your outgoings. It shows that your business can comfortably cover its expenses and potentially invest in new areas .

Alternatively, a negative cash flow suggests more money is leaving your business than coming in. This makes it harder to cover bills and running costs, often making it less likely you’ll get investment. 

Cash flow is a useful indicator when working out the affordability of loan payments. A negative balance suggests you might struggle to keep up with large repayments.


Funding options for your start-up

Each start-up is unique, with specific customers and target markets to keep in mind. The good news? There are a wide variety of funding options to match these demands. Some are even tailored towards getting new potential businesses off the ground. 

With everything from loans and grants to overdrafts and private investments, it can feel like a crowded market. 

What to consider when choosing a funding option:

  • Be clear on the amount you need. Loans and grants tend to provide smaller one-off payments. For larger sums, you might wish to approach private investors instead.
  • Think about the long-term costs. Interest and charges aren’t the only potential costs when you borrow money to start a business. Private investors may ask you to give up some control or request an equity stake, for example.
  • Remember your business goals. The right funding option might not always be the cheapest. You’ll also need to decide whether it matches the speed and scale of your ambitions.
  • Consider your risk appetite. Loans and business credit cards carry the risk of missed repayments. With private investors, you could face pressure to hit certain targets or disagree over strategy decisions.

Where can you borrow money to start a business?

Banks, specialist lenders and crowdfunding platforms are just the tip of the iceberg when it comes to start-up funding providers. A range of online networks may also connect you with private investors. Meanwhile, government agencies like UK Research and Innovation could point you in the direction of grant funding.

It’s important to carry out due diligence, whichever route you go down. Choosing a reputable lender should give you peace of mind about the long-term security of your funding. Reviews and testimonials offer valuable insight into the experiences of other businesses. They can reveal just how much a lender understands and effectively collaborates with start-ups.


What will lenders look at when funding a start-up?

Ready to begin a funding application? Here are some of the factors your lender might consider:

  • Credit scores. A bank may check both your business and personal credit ratings to see how trustworthy you are.
  • Financial performance. You might be asked for a breakdown of your income and cash flow, along with projected profits and turnover.
  • Existing debts. Any outstanding or previous borrowing could be taken into account.
  • Business plan. A watertight, evidence-based summary may help to win lenders over.

Compare Royal Bank Business Loans and Finance

Choosing the right business funding could drive your company to the next level while building on its early foundations. But with so many options now available, it’s important to take your time and track down a solution that matches your needs. Repayment terms, borrowing costs and eligibility requirements are just a few essentials to bear in mind.


Do you need to borrow money?

You don’t necessarily have to borrow money to start and grow a small business.

A range of grants and government schemes are available too, covering different regions, sectors and technologies . You’ll often find that these don’t have to be repaid, potentially reducing or even removing your borrowing needs.

It’s also useful to ask the following questions before starting any borrowing application:

  • How much will it cost? What interest rate and fees could you be charged?
  • What are the repayment terms? How many months will it take to pay the agreement off? And how does that fit with your financial forecasts?
  • What does it mean for your savings? Building a savings pot  can give entrepreneurs a safety net during leaner periods. Would a loan or other borrowing arrangements hit your ability to save?

Related content

Want to know more about starting and growing a business? Check out our other business lending guides:

How to get funding for your business

How do business loans work?

How to appeal a business borrowing decision

Royal Bank Small Business Loan

Contact us

Need support with your small business? We’re here to help.

Get help 24/7 with Cora , our digital assistant, or message us through our mobile app .

You can also contact us on 03456002230 Lines are open 9.00am – 5.30pm Monday to Friday (except public holidays). 

Customers with hearing and speech impairments can contact us by using our Relay UK Service: 18001 0345 600 2230

For more information visit the accessibility page.

Calls may be recorded for training and monitoring purposes.

To see how much your call might cost, visit the call charge information page.