Business loans for companies trading under 2 years

Why many lenders ask for two years’ trading

Two sets of filed accounts give lenders a track record: they can see turnover, profitability and how the business coped with a full trading cycle. Without that history, lenders have less to go on, so they lean more heavily on other evidence such as current bank statements, contracts, forecasts and the directors’ own financial position.

Some lenders will consider businesses from as little as a few months’ trading, while others want one or two years. Because criteria vary so widely, applying to the wrong lender can lead to declines and unnecessary credit searches, which is one reason businesses use a broker.

Finance options for younger businesses

The Start Up Loans scheme

Start Up Loans is part of the British Business Bank. It offers unsecured personal loans for business use of £500 to £25,000, at a fixed interest rate of 7.5% a year, repayable over one to five years, with 12 months of free mentoring and no fees for arranging the loan or repaying early. GOV.UK says the business must be UK-based and have been fully trading for less than five years, or you must be planning to start one.

Because a Start Up Loan is a personal loan, you are personally responsible for repaying it. It can sometimes be combined with other finance, such as asset finance for equipment. You apply directly through Start Up Loans, and the scheme’s terms can change, so check its website for the latest details.

Nexgen does not arrange Start Up Loans; we mention them because they are often a good fit for very new businesses.

Government-backed lending through the Growth Guarantee Scheme

The Growth Guarantee Scheme gives accredited lenders a government-backed guarantee on part of a facility. GOV.UK says it is available to UK businesses with turnover of up to £45 million, with facilities of up to £2 million per business group, covering term loans, overdrafts, asset finance and invoice finance. The lender must consider the business viable, and all facilities remain at the lender’s discretion, with standard credit checks. You remain fully liable for the debt. Read more in our Growth Guarantee Scheme guide.

How to strengthen your application

Lenders want to understand your business quickly. The more of this you can provide, the better:

• Three to six months of business bank statements, ideally showing regular income
• Up-to-date management accounts (profit and loss and balance sheet), even if you haven’t filed full accounts yet
• A short business plan and 12-month cash flow forecast with realistic assumptions
• Evidence of contracts, orders, repeat customers or a pipeline
• Details of your and your co-directors’ relevant industry experience
• A clean personal credit file where possible, and a deposit or own contribution for asset purchases

Avoid applying to several lenders at once. Multiple searches in a short period can make lenders more cautious.

Costs and risks to be aware of

Younger businesses are generally seen as higher risk, so pricing can be higher and loan sizes smaller than for an established company. Directors are often asked for a personal guarantee, which makes you personally liable if the business can’t repay. If borrowing is secured on property, the property may be repossessed if repayments are not kept up.

Borrow for things that will help the business earn or save money, and make sure your forecast shows repayments are affordable even if sales take longer to build than you expect.

How we help

As a broker, not a lender, we know which lenders on our panel consider younger businesses and which products are realistic at your stage. We will tell you honestly if waiting until you have filed your first accounts might give you better options. You might also find our guide on securing new business loans helpful.