Start Up Loans are getting more expensive. Here's what it actually means for your business.

Start Up Loans are getting more expensive. Here's what it actually means for your business.

From 6 April 2026, the government-backed Start Up Loan scheme is increasing its fixed interest rate from 6% to 7.5%. It's the first rate change since the scheme launched in 2012.

If you're a small business owner thinking about applying, the headlines might make this sound like bad news. The reality is more nuanced. Here's what's actually changing, what it costs in real terms, and whether Start Up Loans are still worth it.

What's changing

Two things are happening on 6 April 2026.

First, the interest rate is going up. Start Up Loans have been fixed at 6% since the scheme launched in 2012. That rate stayed flat through over a decade of economic turbulence, including Brexit, Covid, and the highest base rates in 15 years. It was always going to move eventually.

Second, and arguably more important, the eligibility window is expanding from 36 months to 60 months. That means businesses that have been trading for up to five years can now apply. Previously, if your business was more than three years old, you were locked out of the scheme entirely.

What it costs in real money

Most coverage of this change stops at the headline. So let's look at what the rate increase actually means in monthly repayments and total interest.

For a £10,000 loan over 5 years:

| | At 6% | At 7.5% | |---|---|---| | Monthly repayment | £193 | £200 | | Total interest paid | £1,600 | £2,023 | | Extra cost at 7.5% | | £423 more over 5 years |

For a £25,000 loan over 5 years:

| | At 6% | At 7.5% | |---|---|---| | Monthly repayment | £483 | £501 | | Total interest paid | £4,000 | £5,058 | | Extra cost at 7.5% | | £1,058 more over 5 years |

On the maximum £25,000 loan, we're talking about an extra £18 a month. Over the full five-year term, the rate increase adds roughly £1,058 in total interest. That's real money, but it's not transformative. It's about £17.60 a month.

How 7.5% compares to the wider lending market

This is where context matters. At 7.5%, Start Up Loans are still comfortably below what most small businesses will find elsewhere.

High street banks are currently offering unsecured SME loans at around 7% to 13% representative APR. That's for established businesses with two or more years of trading history, filed accounts, and clean credit. A startup with six months of trading isn't getting those rates.

Alternative and online lenders, the ones that will actually approve early-stage businesses, typically charge 15% to 30% or more. A short-term lender offering £20,000 at 18% over two years costs you roughly £3,928 in interest. At 25% over one year, that same £20,000 costs £2,764 in interest but demands nearly £1,900 a month in repayments. And a merchant cash advance at a 1.3 factor rate costs you £6,000 on a £20,000 advance, no matter how long it takes to repay.

Compare that to a Start Up Loan: £20,000 at 7.5% over five years costs £4,046 in total interest, with monthly repayments of just £401.

We also operate in a higher inflationary environment now. The value of money is worth less down the road, which makes a fixed rate of 7.5% over five years even more attractive in real terms. Start Up Loan funding is still some of the cheapest money around for anyone, and especially for startups who have almost no other options at this price point.

A fixed 7.5% with no arrangement fees, no early repayment charges, and 12 months of free mentoring is still one of the cheapest forms of business finance available in the UK. The gap between Start Up Loans and the commercial market has narrowed, but it hasn't closed.

The bigger story: five years of eligibility

The rate increase is getting the headlines, but the eligibility expansion from 36 months to 60 months of trading is arguably the more significant change.

A lot of businesses hit a funding crunch between year three and year five. They've survived the startup phase but aren't yet established enough for competitive bank lending. Revenue might be growing but isn't consistent enough for a bank to underwrite. They're too old for startup funding and too young for mainstream finance.

Opening the scheme to businesses trading for up to five years fills a real gap. This rolls a lot more businesses into the eligibility pool, and it's another strong move by the Start Up Loans Company. For a business in year four that needs £15,000 to hire their first employee or invest in equipment, the difference between 7.5% fixed and whatever an alternative lender would charge them is significant.

Should you rush to apply before 6 April?

If you're already in the process of applying and your credit check was passed before 6 April, you'll have 90 days to complete your application at the current 6% rate.

If you're thinking about applying but haven't started, the honest answer is: don't rush into borrowing just to save a percentage point. On a £10,000 loan, the difference is about £7 a month. If your business plan isn't ready, or you haven't thought through your cashflow forecast properly, a slightly lower rate won't make up for that.

That said, we're firm believers in understanding your eligibility, even when there's no immediate need. Knowing what finance you can access should be a fundamental part of your business planning. You don't have to draw down a loan to benefit from knowing it's available to you.

The bottom line

Start Up Loans at 7.5% are still genuinely cheap finance for early-stage businesses. No arrangement fees. No early repayment penalties. A fixed rate for the life of the loan. Free mentoring and business planning support. Try getting that package from an alternative lender.

The rate increase is understandable. Holding at 6% while the base rate moved from 0.1% to over 4% was always going to be unsustainable. The fact that it stayed flat for 14 years is the real story.

If you're an early-stage business looking for affordable funding, Start Up Loans should still be near the top of your list. And if you're between three and five years old, this is the first time you've been eligible at all. That matters more than the extra 1.5% on the rate.

Not sure which funding option is right for your business? Floka helps you compare loan options from across the UK market, so you can find the right fit without the runaround.