Having finance on hand can make all the difference when you're starting your business journey. Let's look at how to get a line of credit to start up a business as well as the alternatives available.
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A wave of entrepreneurial ambition is sweeping across the UK: over a third of people (35%) want to start a business in 2025. For most of these budding founders, the major hurdle will be funding. Investment is a popular way to secure capital, but it often means – unlike institutional finance – trading away equity. This leads many entrepreneurs to wonder: Can I get a business line of credit or loan to start my business?
This guide will walk you through the possibilities and challenges when it comes to funding your startup, as well as how to give yourself the best chance of securing the cash needed to get your business off the ground.
Getting a business line of credit to start up a business may be tricky, given the lack of collateral, financial track records and credit history for lenders to refer to. But with preparation and strategic thinking, it is possible.
Before we delve into the details, it’s worth examining the difference between a business line of credit and a business loan for startups.
While a loan is a fixed amount of money that comes with a flat interest rate and predetermined repayments, a line of credit is a bit more dynamic. It’s almost like a credit card: You draw funds as needed up to an approved limit while paying interest only on the amount used. A line of credit offers startups several advantages:
As a fresh-faced startup, there are a few things you can do to increase your chances of a lender being willing to take a risk on you
Step one when applying for a business line of credit as a startup is creating a business plan. Ultimately, lenders want to see that your business is viable and capable of repaying debt. Your plan should include:
Let’s take a look at these three sections in more detail.
A clear and realistic outline of how your business will generate income over the next three years is essential. This section should include:
Your market analysis should demonstrate an understanding of your target audience and market conditions. You should include the following:
This section of your business plan explains the nuts and bolts of how your business will function efficiently and deliver on its promises. You need to cover:
Use tools like the UK Government’s business plan template or consult professional advisors to ensure your plan meets lender expectations.
In the UK, the private sector isn’t your only bet when applying for startup business funding support. There are government-backed options, too, like the Start Up Loans Scheme, that provide accessible funding for burgeoning businesses.
These loans offer competitive interest rates, flexible repayment terms, and no hidden fees. To be eligible, you’ll need to show a viable business plan and the potential for success.
The application process is straightforward and includes free business mentoring. You can find out more info on the Start Up Loans Scheme website.
If traditional loans or lines of credit aren’t viable, consider these alternatives:
Each option has pros and cons. For instance, online lenders offer speed and ease of access but will generally charge higher interest than banks.
Collateral is an asset (or assets) pledged to a lender as security for a loan. In simple terms, the asset can be seized if you can’t repay the loan. Collateral is often required for traditional loans because it reduces the lender’s risk.
For a business, collateral could be equipment, inventory, real estate, or accounts receivable pledged to secure a loan. For example, a company might use its machinery as collateral for a loan to expand operations.
For startup loans, collateral is a chicken-egg scenario. Startups often don’t have the assets needed to put up for collateral. But there are two ways around this: Personal guarantees and unsecured loans.
A personal guarantee is when you pledge your assets as collateral for a loan. Essentially, it makes you personally liable for the loan, putting your assets—such as savings, property, or investments—at risk if the business defaults on its obligations.
A less personally risky alternative to a personal guarantee is an unsecured loan. An unsecured loan doesn’t require you to provide any collateral, such as property or assets, to secure the loan.
Unsecured loans typically have higher interest rates than secured loans due to the increased risk for lenders, but they offer quicker access to funds and are commonly used for personal expenses or small business needs.
There are a few legal requirements for startup loans you need to know about. If you don’t do these compliance steps first, you won’t be able to get a loan.
Register your business entity: Whether as a sole trader, partnership, limited company, or another structure. Each type has specific legal and tax implications, so choose the one that best suits your business goals.
Licenses and permits: You’ll need to get any necessary licences and permits required for your industry. This could include health and safety certifications, trading licences, or sector-specific authorisations such as food hygiene certificates for catering businesses. Operating without the correct permits could result in fines or legal action, so it’s vital to check local and national regulations.
Comply with tax obligations: You may want to register for VAT early (if you expect your turnover will exceed the VAT threshold). You’ll also need to set up systems to manage PAYE if you want to employ staff.
For guidance on these steps, resources like HMRC’s business support page. It may also be a good idea to speak with a solicitor or accountant to ensure everything is in order before seeking funding.
Given the complexity and variety of funding options available—such as loans, lines of credit, crowdfunding, or venture capital—it would be a good idea to consult with experienced professionals who can provide tailored guidance, in particular financial advisers and accountants.
Financial advisors: These professionals can help you understand your cash flow needs, and recommend the most suitable funding strategies. For example, they can advise whether a traditional bank loan with fixed repayments aligns with your goals or if a more flexible option, like a business line of credit, is better suited to your needs
Accountants: An accountant plays a key role in preparing financial forecasts and ensuring your business plan meets the standards expected by lenders. They can also help you evaluate the tax implications of different funding routes, such as how interest payments on loans might affect your taxable income.
Organisations like the British Business Bank provide helpful resources and directories for professional services.
An iwoca Flexi-Loan is a startup-friendly, flexible and efficient funding option. Applying takes minutes and we’ll typically provide a decision within 24 hours (sometimes less).
Our Flexi-Loan features customised credit limits and transparent terms. Once approved, the funds can be transferred directly to your bank account, often becoming available within hours.
Use it as you see fit: for a marketing push, to hire an employee, to buy equipment or simply to cover a lean month. The Flexi-Loan gives startups the flexibility they need to keep growing.
Find out how iwoca can help fund your startup growth by visiting our website.
Yes, it’s possible to get a business line of credit to start your business, although it can be challenging for startups without collateral or a proven financial track record. To improve your chances, focus on presenting a strong business plan and demonstrating your business’s potential for revenue.
Lenders typically assess your creditworthiness, financial projections, and business plan. For startups, demonstrating demand for your product or service through market analysis and providing clear revenue forecasts is essential. If your business lacks collateral, lenders may consider personal guarantees or charge higher interest rates for unsecured credit.
A business line of credit is valuable for startups because it offers flexibility and quick access to funds. It’s ideal for managing cash flow fluctuations, covering unexpected expenses, or seizing growth opportunities without committing to a fixed loan. Additionally, responsible use of a line of credit can help establish your business’s creditworthiness over time.
