Recommendations for Improving Startup Loans

This blog post extends on comments I have made in today’s Sunday Telegraph: ‘Start-up loans rapped for pitches to students

Despite several false starts and a shaky few months into 2013, the Startup Loans Company and delivery partners now seem to be proving there is sufficient demand. The statistics provided by James Caan may need to be taken with a pinch of salt though, as while on March 13th a press release claimed 2,000 businesses had been approved for funding, official data held by Government shows only 814 loans had been issued as of March 1st*.

On Monday it is expected that Lord Young will use his latest report ‘Growing Your Business’ to recommend that the Startup Loans age cap of 30 years is raised to 35 years (edit: recommendation was for removal of cap entirely), allowing more people to access loans and mentoring. I’m safely assuming the recommendation would not have been made unless there was certainty it would be accepted – he is a direct advisor to the Prime Minister after all.

It is fair to say that the Startup Loans Company and overall scheme elicits strong opinions and debate among people in the entrepreneurship and education communities. For a scheme that attracts such strong criticism in private, there has been surprisingly little public acknowledgement and debate around these widespread concerns. The failure of the Government and James Caan to acknowledge the concerns of the entrepreneurship community may have played a role in David Cameron’s January 2013 announcement ‘waving through’ the scheme from one year pilot (as described in the 2012 Budget) to a full 3 year project without any evaluation or changes.

Before the scheme extends further I would like to see James Caan acknowledge the concerns held by many in the community and engage in meaningful, public debate not just with the Delivery Partners, but with the wider entrepreneurship and education communities to improve the impact and efficiency of the scheme.

Below I have summarised 4 of the major criticisms I often hear about the scheme, and I have proposed 4 recommendations for improvement.


  • The wrong message
    With the strength of Startup Loans (SUL) messaging online and the sheer number of delivery partners now highly incentivised to promote SUL, the default response when a young person expresses an interest in launching a business is now “great, take a loan”. This propaganda is so overpowering, that we risk making young people believe that the only way to launch a business is to take a SUL. The lean startup methodology, the 3 Fs, and all the fantastic free support and grants available through colleges and universities are all sidelined by SUL and partners in the pursuit of targets and commission through issuing as many loans as possible.
  • Too many delivery partners
    Delivery partners continue to be added to the scheme in the misguided belief that more partners will lead to more young people engaged and more loans issued. Instead, each additional delivery partner is chasing the same pool of young people, creating competition between the partners.
  • Perverse incentives
    With commission earned on every loan issued, delivery partners have a perverse incentive to offer as many loans at the highest value as possible. This leads to more direct marketing, the loosening of application requirements and checks, and the desire to issue larger loans regardless of the applicant’s needs. More than one of the delivery partners have been described (repeatedly across the entrepreneurship sector) as ‘predatory’ in its marketing and lending.
  • Undermining existing support
    SUL was conceived and designed with no input from business startup support structures already in operation locally and within education institutions. SUL’s failure to acknowledge this existing, high quality, local, face to face support for young people in any of its literature or guidance, is further undermined by its central recruitment and ‘training’ of student ambassadors who are then sent back to their institutions to act as ‘the go-to person on campus for starting a business’ – who of course solely promote SUL.

Recommendations for improvement

  • Reduce the number of delivery partners
    Delivery partners should be restricted only to those organisations who’s core activity and expertise is business start-up support. The quality of the coaching and mentoring on offer,as well as the past performance on SUL should be considered when choosing which delivery partners to retain.
  • Introduce geographic restrictions on remaining delivery partners
    Considered when first designed, but never implemented, geographic areas of operation for delivery partners would avoid universities and other institutions being bombarded by all partners, would remove confusion for young people and would reduce the desire for partners to lower pre-qualification criteria to attract applicants. Regional franchises can be awarded to a single delivery partner for a fixed period, with the incumbents’ performance evaluated after 18/24 months and the franchise offered out for tender again.
  • Reward mentoring minus loan
    As it stands, SUL offers a loan plus mentoring, but delivery partners are not incentivised or rewarded to offer mentoring to those who do not need a loan. Commission should be provided based on the number of businesses supported through ongoing formal mentoring, not the number of loans issued. That way partners would receive funding to provide mentoring without loans. Indeed this may be a more rewarding and therefore preferred approach for partners as it would reduce loan management & collection costs.
  • Rebrand
    SUL have filled a gap – there was no unified, national brand and campaign that directed young people to business startup support. It is not surprising therefore that it has gained such traction. However, the core message, that to start a business you must take a loan fails to acknowledge the many routes to business startup. As the government campaign to encourage young people to start businesses, this scheme, the branding and all messaging should be refocused away from loans to a more general startup support brand similar to Business In You (but young person friendly). Core to this campaign can be online resources, a funding database as well as access to mentoring and loans.

*Data obtained by Freedom of Information Request – FOI Response.

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