Government loans aren’t hand outs

Tom Welsh
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LAST week, the government announced the expansion of its start-up loan scheme, headed up by serial entrepreneur James Caan. Originally aimed at 18 to 24 year olds, and with funding of £82m, the loans are now available to anyone aged up to 30 and the total amount of funding will increase to £112m.

The inevitable plaudits rolled in. “A late but very welcome Christmas present,” said Lee Perkins, managing director of Sage UK’s small business division. “A great success,” said Doug Richards of the School for Startups. But the sad truth is that only 3,000 people have applied for a loan from the scheme since its launch in May – and they received a total of just £1.5m.

Part of the problem is likely to be awareness. The application process itself is actually fairly easy, and all the details are nicely set out on the Start-Up Loan Company’s website ( An average of £2,500 is available to successful applicants, potentially a much-needed boost to any early-stage company.

But there are also broader explanations for the slow take-up. The loans aren’t exactly a hand-out. They are personal loans which have to be paid back over five years, at an interest rate currently fixed at 6 per cent.

And as the Bank of England’s most recent Credit Conditions survey reminds us, small businesses aren’t exactly chomping at the bit for credit. While loan availability rose across all sizes of companies, demand actually fell in the fourth quarter of 2012 for smaller-sized enterprises.

There’s little point chewing over the reasons for declining demand, but it’s worth reflecting that the availability of funding is not necessarily the main break holding back business growth. It’s quite possible to develop a idea, grow a company, win sales and innovate without getting into debt. In fact, in some instances, it might be more sensible to do it yourself – with your own savings.

Tom Welsh is financial features editor at City A.M.