Start-up loans scheme expanded
- 3 January 2013
- From the section Business
The government is expanding its start-up loans scheme, which offers young entrepreneurs loans of about £2,500 to help them start businesses.
The scheme had originally been aimed at 18-to-24-year-olds, but is now being expanded to those aged up to 30.
To cater for the wider age band, the funding available for start-up loans will rise from £82m to £112m.
But the scheme, which was announced at the end of May, has only lent out £1.5m so far.
The Start-up Loans Company, which runs the scheme, said the relatively slow start was due to the time taken to set up local partnerships, but that the pace of loans had picked up during December.
The target is to lend all £112m by April 2015.
More than 3,000 people have applied for the loans so far, but if the target is to be met then almost 45,000 entrepreneurs will have to take out the loans.
The expansion was officially announced by Prime Minister David Cameron at an event in Preston.
He said there were record numbers of new companies starting and the start-up scheme was "absolutely vital for the future of our country".
"The government's role has got to be to try to do everything we can to encourage more start-ups and then to help them to grow, to get finance and take people on," he told an audience of young people and entrepreneurs.
Mr Cameron said banks should also be doing more: "A lot of this should be the job of banks, but frankly after the terrible problems of 2008-9... there are gaps in the market".
One of those gaps was start-up finance, he said. "I am not content to sit back and wait for the banks to get on with this work."
But Labour's shadow business secretary Chuka Umunna criticised the way the scheme was being delivered.
"With our economy flat-lining it's essential that initiatives like the Start-up Loans scheme are delivered effectively if they are to provide real opportunities for our young entrepreneurs."
Mr Umunna said the numbers of loan given out so far was massively behind target and the government needed to tackle a lack of awareness about the scheme.
Start-up loans have generally been welcomed by business groups, although there have been suggestions that the average of £2,500 on offer may not be enough to make a difference.
"It is not about creating the next multinational, it is about creating a series of micro-businesses, giving you enough capital to start your own business," said Ketan Makwana, from Rockstar Youth, one of the organisations administering the loans.
But Mr Makwana said the most important part of the scheme was the advice and mentoring that young people get along with the loan.
He told the BBC that he rejected the "cynical view" that the programme was a cheap way of getting people off the unemployment register.
"What it is doing is inspiring a generation to get Britain back into business," he told BBC Radio 4's Today programme.
"It is giving an opportunity to those who want to start a business and maybe increase employment opportunities for others in the future."
The Start-up Loans Company is chaired by James Caan, who is best known for his appearances on the television programme Dragons' Den.
"I am delighted to see that more and more young people are now looking to set up their own business," said Mr Caan.
"What is clear about the scheme is the take-up is there.
"We have already backed 460 businesses in the last three months. We are looking to back 100 businesses a week," he told BBC News.
One of the first to be offered a loan was Elena Mingas who used the money to open a fashion business, Tangle Dress Design in Bury.
"The time to do something is when you are young. I know for a fact, because I have tried all the other places, that the support isn't there for us."
She said she hoped the scheme would help overcome a negative attitude towards young people and show would they could achieve.
The scheme was created by government enterprise advisor Lord Young, whose report on small businesses last year suggested that if the UK was as entrepreneurial as the US, an extra 900,000 businesses could be set up.
The loans must be repaid within five years, and interest will be charged at the level of inflation measured by the the Retail Prices Index (RPI), plus 3%.
RPI in November stood at 3.0%.
The loans are part of the government's attempts to reduce youth unemployment.
The most recent official figures showed that 17.9% of 16-to-24-year-olds who were not in full-time education were unemployed.