Start-up Loans scheme for young entrepreneurs explained

A guide to the government-backed scheme designed to provide loans and mentoring to young people starting a business

by Abigail Van-West
Aticle is from:  http://www.startups.co.uk/start-up-loans-scheme-explained.html?utm_source=Adestra&utm_medium=email&utm_content=Feature%202&utm_campaign=SU%20Newsletter%2010%2F01%2F2013%20%28SBL%29&utm_term=1053

 

Student and youth enterprise has come to the fore in recent years. Young entrepreneurs are spilling out of schools and universities in greater numbers than ever as an antidote to rising levels of unemployment, a lack of well-paid graduate jobs, and the prominence of entrepreneurship as a career option.

Desperate to encourage entrepreneurial activity and for the private sector to solve the ills of the UK economy, the government has backed a number of initiatives, including the Start-up Loans scheme, in the hope of seeing more people start a business.

What is the Start-up Loans scheme?

Administered by the Start-up Loans Company, which is chaired by former star of BBC Dragons’ Den James Caan, the Start-up Loans scheme is a government-backed initiative aimed at providing business loans and mentoring support to create and nurture more young entrepreneurs.

Announced in May 2012 and launched in pilot in September 2012, the scheme offers average loans of £2,500 to young people who wish to start a business, once their idea is approved by one of the scheme’s many delivery partners – these are companies that have partnered with the scheme; they are responsible for distributing the loan and providing mentoring support.

The amount pledged to the scheme over the course of three years was originally set at £82.5m, but this was given a £30m boost in January 2013 with prime minister David Cameron pledging his support and pointing to meetings with recipients, some of whom have become employers months after successfully securing loans.

The £112.5m total is set to be spread across three financial years thus:

• Year 1, 2012-13: £10m (pilot scheme)

• Year 2, 2013-14: £42.5m

• Year 3, 2014-15: £60m

These loans are available in England only. The funds will be distributed across the following regions:

• East Midlands 5%
• East of England 3%
• Greater London 34%
• North East England 3%
• North West 9%
• South East 19%
• South West 7%
• West Midlands 14%
• Yorkshire and Humber 6%

Who has the scheme helped so far?

By the turn of the year 2013, more than 3,000 people had registered interest for a Start-Up Loan and over 460 new businesses had been approved for loans totalling over £1.5m. Commentators argued the initial take-up had been disappointingly slow and the reason behind the expansion of the upper age limit to 30.

Case Studies

• Wireside Productions: Film production graduates Michael Evans and Jason Brown were granted a Start-up Loan to fund the launch of their film and photography company. They are using the money to develop a user-friendly stylish website and to fund marketing plans.

• Miporto: Founded by 18-year-old Josh Valman, Miporto enables individuals without formal design skills to develop products with the help of a product manager. With the money and mentoring support from the Start-up Loans scheme, Valman has developed his business website and is set for launch in January 2013.

• Monroes Hair: Lisa Brady received a Start-up Loan to fund the launch of her hair dressing business focused on customers with hair loss problems. With the money and mentoring support, Brady has been able to expand the reach of her company and is in talks with private hospital Little Princess Trust, a charity for children undergoing chemotherapy.

How much can be borrowed?

The actual amount loaned is determined by the applicant and the delivery partner, according to how much is deemed necessary. Each loan will amount to an average of £2,500, but there is no official limit.

What are the repayment terms?

Loans must be repaid within five years at an interest rate set at the fixed rate of interest (known as the Retail Price Index and currently set at 6%) plus 3%.

The delivery partners then repay loans and interest back to a central fund, which can be used to fund further loans.

Who can apply for a Start-up Loan?

The loans were originally aimed at budding entrepreneurs aged between 18 and 24, however the upper age limit was increased to 30 in January 2013.

Consequently, to apply for a loan individuals must be at least 18 on the date of application and no older than 30.

In addition, applicants must also be living in England and are required to have an idea for a new business.

As a general rule, start-ups must be in their initial phase, without existing debt and developed infrastructure, but this is flexible and the Start-up Loans company takes a positive view to issuing loans to existing start-ups.

A business loan is not necessarily required to apply for the loan, as it is a personal loan. This means that if multiple founders apply for a loan, they could each receive a loan to invest in the same business. However, if the specific delivery partner deems it necessary for the applicant to have a business loan, they will support applicants to set one up.

How to apply for Start-up Loans

To begin, applicants simply fill in their contact details in the online application and identify the sector in which their business will be focused. This can be located on the Start-Up Loans site or through the Facebook page.

Who decides whether an applicant is suitable?

Once the application has been sent, the Start-up Loans Company then identifies a delivery partner for the applicant.

The chosen delivery partner then helps each applicant to identify what stage the business is at and then supports the applicant to develop a business plan, which will be pitched to a panel.

Those who pitch successfully will be provided with a loan, distributed by the delivery partner.

Delivery Partners:

The number of delivery partners continues to grow and the Start-up Loans Company is expecting to reach 40 by the end of its first financial year.

• The Prince’s Trust
• Business Finance Solutions, Manchester
• South West Investment Group (SWIG)
• Young Britain
• Let’s Do Business
• North London Community Finance (NLCF)
• PNE/Virgin
• Rockstar Youth
• Foundation East
• Enterprise Loans East Midlands
• Hull Business Development Fund
• GLE/One London/NACUE
• Sheffield City Council
• Norfolk and Waveney Enterprise Services
• Wessex Enterprise
• Community Finance Development Association
• School for Start Ups

What support is available?

As well as pitch training, delivery partners provide applicants with business support and mentoring to help them get their business started.

Applicants will also be eligible for benefits packages supplied by the Start-up Loans Company’s global partners, which include workspace provider Regus, accounting software provider Intuit and secure payments service Paypal.

Regus package:

• Six months of free access to Regus’ virtual office package and access to a range of Regus’ worldwide business lounges.
• Free copy of business guide, titled Start-Up Loans Kit.
• £500 worth of offers on products including business cards, netbooks and work suits.

Intuit package:

• Two years of free access to cloud-based accounting software, QuickBooks Online Simple Start.

PayPal package:

• Discounted rate with PayPal business account of 1.4%+20p per transaction (down from 3.4%) for six months.

What other loans are available for young entrepreneurs?

• The Prince’s Trust:The Enterprise Programme launched in 2009-10 offers entrepreneurs aged between 18 and 30 the opportunity to apply for three-year loans of up to £4,000, in addition to mentoring support.
• UnLtd: The social entrepreneur network offers grants of up to £5,000 to individuals aged 16 and over to fund their social enterprises.
• Business Accelerators: Accelerator programmes, including Springboard, Seedcamp and Oxygen provide start-ups with intensive training and support, followed by the opportunity to receive investment. Similarly a number of universities, including the University of Reading provide programmes that offer coaching and mentoring to budding young entrepreneurs.