Budding entrepreneurs aged between 18 and 24 are being offered “affordable” loans, plus training and support to turn their business plans into reality. The StartUp Loans scheme, introduced this week by the Government, could provide a lifeline for young people with an enterprising idea, say experts, as banks are still not lending and are imposing increasingly high charges on business accounts.
The Government has also allocated £100 million of money to lend to small and medium-sized enterprises (SME) through peer-to-peer websites, which allow savers to lend money directly to SMEs.
On Thursday it opened a bidding process that will lead to this government money joining funds from thousands of other investors.
What does the StartUp scheme offer?
A personal loan of up to £2,500, although you can apply for less. There will also be helpful non-financial support such as training and support in the form of business mentors — experienced entrepreneurs or organisations that help young people to start businesses. It is open only to people living in England.
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Is the loan good value?
You have to pay back the loan within five years, and interest will be charged at the level of the retail prices index (RPI) plus 3 per cent. With the RPI at 3.5 per cent, that gives a pay rate of 6.5 per cent, which is a much lower rate than an under-25-year-old could get on a standard loan.
How many people will qualify?
£82.5 million is up for grabs over the next three years, which means at least 30,000 people should qualify.
What do I need to do to apply?
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The loans will be distributed by StartUp Loan partners. You choose which partner you think will be most helpful and then submit a business plan and application.
Who are the partners?
We don’t know yet, though the Prince’s Trust and the Economic Solutions Group have been shortlisted. The Dragons’ Den star James Caan is chairing the body that chooses the partners and says he wants to appoint at least 12 partner organisations to distribute the money.
So I can’t apply yet?
You can register your details at startuploans.co.uk and you’ll be kept updated as new partners are announced.
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Is £2,500 enough to start a business?
“If you have a good idea and a sound business plan you do not need a fortune to launch a business,” says Phil McCabe of the Forum of Private Business. A new business can be effectively promoted for very little cost using the internet and sites such as Facebook, Twitter and LinkedIn.
Are there any other sources of funding for young entrepreneurs?
The Prince’s Trust has been helping unemployed young people to start a business through its Enterprise Programme for nearly 30 years.
The deal is similar to the StartUp scheme — training, mentoring support and loans of up to £5,000 are offered, and it is open to people who are aged from 18 to 30.
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Richard Whiting, 26, battled with an alcohol problem after being made redundant but thanks to the Prince’s Trust has turned his life around. He now employs four people in his blind-fitting company in Leigh-on-Sea, Essex.
He says: “It’s amazing how much my life has changed in just 18 months. I was unemployed and feeling hopeless, but now I’m running a successful business doing something I enjoy. I’m proud of the fact that I’ve created a job not just for myself, but for other people too.”
What about Wonga and payday loan companies?
The reluctance of banks to extend credit has opened the door to payday lenders who charge high rates to the desperate who can’t get loans elsewhere. Wonga, the most high-profile, controversially entered the business lending market this month, offering short-term loans to companies at interest rates of between 0.3 per cent and 2 per cent a week. Businesses that take a year to repay the loan, the maximum allowed, could end up paying annual interest of between 17 per cent and 106 per cent.
And peer-to-peer lending?
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Peer-to-peer websites enable you to appeal directly to the public for funding — or for a slice of the £100 million of government money that should be available by the autumn. You put forward a pitch to encourage investors to back you and then make the choice whether to accept the terms you are offered. The Forum of Private Business’s favoured peer-to-peer lending website is fundingcircle.co.uk which, since 2010, has lent nearly £34 million to 750 firms.
Can business angels help?
Business angels invest in fledgling businesses in exchange for shares, which is a step too far for many entrepreneurs.
Jenny Tooth, of the British Business Angels Association, says: “Angels are looking for a return, so to attract funding you really have to be quite ambitious. In return for putting money into the business they bring you lots of skills, knowledge and market experience.”
Find out more at bbaa.org.uk