Many Start-Up Loans May Not Be Repaid

Posted on 24th September 2013

Recent research suggests that up to 40 per cent of start-up loans will not be repaid and that there is already well over half a million pounds’ worth of arrears on them.

The Government announced last week that the Start-Up Loans scheme was to be given increased funding, in a bid to boost entrepreneurship and promote economic growth. The scheme’s eligibility was also increased from the under-30s to all adults.

However, on top of the existing arrears of £549,000, documents seen by the Financial Times show that 5 per cent of this money will be paid to the Start-Up Loans Company as a fee for running the scheme, while a further £12.5m will be paid to “delivery partners” such as Chambers of Commerce, charities and the Prince’s Trust.

The average loan is £4,500, lent over a period of up to five years, with an APR of 6.2 per cent, and the interest payments are used to fund future loans. £44.4m has been loaned so far to more than 7,600 people, with the scheme being on target to help 1,000 businesses a month before the next election.

However, the Start-Up Loans company said it is expecting the default rate to “peak over the next six months” at up to 35 per cent, but then to come back down as risk management is strengthened.

Research into the first 1,519 loans granted under the scheme shows that health and beauty was the most popular business sector, followed by fashion and retail, at 7.7 per cent and 7.4 per cent respectively.

Interestingly, only 2 per cent of the loans were for internet-based businesses, although e-commerce accounted for an additional 4.1 per cent. Manufacturing made up only 1.4 per cent.

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