Key takeaways

  • There is no legal definition of a microloan in the UK; the term usually means a small business loan of a few hundred pounds up to about £25,000.
  • The government-backed Start Up Loan lends £500 to £25,000 at a fixed 7.5% a year, repaid over 1 to 5 years, with up to 12 months of free mentoring.
  • Start Up Loans are open to UK residents aged 18 or over whose business has been fully trading for less than 5 years, subject to a credit check.
  • Community Development Finance Institutions (CDFIs) are not-for-profit lenders for businesses that banks will not serve; there are around 40 in the UK.
  • On 13 July 2026 the government said seven CDFIs were accredited under Community ENABLE Funding, with nearly £120 million committed and an aim of at least £500 million.
  • If one of nine designated banks declines you, the Bank Referral Scheme lets it pass your details to finance platforms, or it must send you their details within five working days.
  • Finding Finance, run by the CDFI industry body, is a free directory that matches businesses with community lenders but does not lend itself.

A microloan is a small business loan, usually from a few hundred pounds up to about £25,000, aimed at start-ups and firms that struggle to borrow from a bank. In the UK the main sources are the government-backed Start Up Loans scheme, which lends £500 to £25,000 at a fixed 7.5%, and not-for-profit community lenders called CDFIs. This page sets out each route, who qualifies and what it costs, checked on 6 November 2026.

What is a microloan?

A microloan is a small loan for a business that is too new, too small or too thin on credit history for a mainstream lender. UK law does not define the term, so lenders use it loosely. In practice it covers loans from about £250 to £25,000, often with mentoring or business support attached.

Microloans are still debt. You repay them with interest, and many need a personal guarantee or a personal credit check. Our guide to personal guarantees explains what that means for you.

Where can you get a microloan in the UK?

You can get a microloan from three main places. The table compares them.

SourceTypical sizeWho it suits
Start Up Loans£500 to £25,000Businesses under 5 years old
CDFIs (community lenders)Varies by lenderBusinesses banks turn down
Banks and online lendersSet by each lenderFirms with trading history

GOV.UK’s business finance support finder lists 196 schemes. You can filter it by “Loan”, business stage and region, which brings up regional CDFIs such as ART Business Loans in the West Midlands and BCRS Business Loans.

How does a Start Up Loan work?

A Start Up Loan is a government-backed personal loan for business use. GOV.UK’s Start Up Loan page sets out these terms:

  • Amount: £500 to £25,000 to start or grow your business
  • Interest: a fixed 7.5% a year
  • Term: 1 to 5 years
  • Support: up to 12 months of free mentoring, plus help writing your business plan

To qualify you must live in the UK, be 18 or over and have, or plan to start, a UK-based business that has been fully trading for less than 5 years. You must also pass a credit check.

As a guide, £10,000 over 5 years at 7.5% costs about £200 a month and roughly £2,000 in interest in total (our calculation). Our full Start Up Loans guide covers the documents you need.

What is a CDFI?

A Community Development Finance Institution (CDFI) is a not-for-profit lender whose mission is to fill gaps in access to finance. Better Business Finance says there are around 40 such providers serving every UK region, represented by the trade body Responsible Finance.

CDFIs aim to help businesses with:

  • poor credit ratings or a thin credit history
  • little or no collateral
  • a short trading track record
  • a base in an under-served or deprived area

Each CDFI sets its own loan sizes, rates and rules. For example, Business Enterprise Fund, a CDFI regulated by the Financial Conduct Authority, needs at least 6 months of trading for its small business loans and charges a 4.5% arrangement fee.

Is government money going into community lenders?

Yes. The British Business Bank runs the Community ENABLE Funding programme, which lends government money to CDFIs to pass on to small businesses. HM Treasury’s 13 July 2026 announcement said:

  • seven CDFIs were accredited under the programme
  • nearly £120 million of government funds were already committed
  • a second phase would open later in 2026, aiming to attract private capital
  • the aim is to grow the programme to at least £500 million

Responsible Finance reported on 15 July 2026 that CDFIs increased small business lending by 28% in the previous year.

How do you find a community lender?

The quickest route is Finding Finance, a free loan-matching service run by the Community Development Finance Association. Follow these steps:

  1. Fill in the Finding Finance form with what you need, how much and where you are based.
  2. Review the lenders it suggests. It does not lend or recommend a lender itself.
  3. Check each lender’s own rules on trading time, location and security.
  4. Prepare your documents: a business plan, a cash flow forecast, bank statements and any accounts.
  5. Apply direct to the lender. Each one makes its own decision.

What if a bank turns you down?

If a large bank declines your application, ask about the Bank Referral Scheme. Under the Small and Medium Sized Business (Finance Platforms) Regulations 2015, nine designated banks must offer to pass your details to designated finance platforms, which look for other lenders.

If you agree, the bank must send your details by the end of the next working day. If you do not, it must send you information about the platforms within five working days, according to HM Treasury’s consultation, updated 11 May 2026.

Which option applies to you?

The right route depends on your age of business and credit record.

  • If your business is under 5 years old and you can pass a credit check, start with a Start Up Loan.
  • If a bank has declined you, use the Bank Referral Scheme and search Finding Finance for a CDFI.
  • If you need more than £25,000, look at the Growth Guarantee Scheme, which backs loans through accredited lenders.
  • If you do not want to repay anything, check government grants first.

Compare rates in our guide to business loan interest rates.

Frequently asked questions

What counts as a microloan in the UK?

There is no legal definition. Lenders usually mean a small business loan of a few hundred pounds up to about £25,000, often for start-ups or firms without a strong credit history.

What is the interest rate on a Start Up Loan?

GOV.UK lists a fixed rate of 7.5% a year, on loans of £500 to £25,000 repaid over 1 to 5 years.

Can I get a microloan with bad credit?

Possibly. CDFIs aim to lend to businesses with poor credit histories, but each sets its own rules, and Start Up Loans still require a credit check.

Are CDFI loans cheaper than bank loans?

Not necessarily. Each CDFI sets its own rates and fees, and some charge arrangement fees, so compare the total cost of any offer before you sign.

Do microloans need a personal guarantee?

Often, yes. Start Up Loans are personal loans, and many community lenders, including Business Enterprise Fund, ask for a personal guarantee.

Sources

Rates, thresholds and rules in this guide were checked against HMRC and GOV.UK guidance on 6 November 2026. Tax rules change, so check the current position on GOV.UK or with a qualified adviser before acting. This guide is general information, not personal advice.