Government launches £82.5m startup loans scheme for young entrepreneurs

The much discussed startup business funding scheme for young people based on the student loan system will launch today.

To be officially unveiled by Lord Young, David Cameron's enterprise advisor, on Monday morning, the initiative is worth £82.5m and will begin with a pilot offering £10m worth of loans to 18-24 year olds in England.

If, the government said, there is enough demand from young people and "capability within the support network" to support them, another £32.5m will be provided in 2013/14 and £40m in 2014/15. 

Individual funding of up to £2,500 will be available with loans having to be repaid over a maximum of five years. The interest rate on loans is RPI (Retail Price Index) plus 3%. The RPI is currently 3.5%.

All funding applicants, who can be unemployed, with a job or in full time education, will receive advice on writing a business plan and successful entrepreneurs will be given access to a mentor. More information is available at www.startuploans.co.uk.

The government has not confirmed what will happen if businesses funded by the loans fail but it has been suggested by an organisation involved in discussions around the setting up of the scheme that the funding would not have to be repaid back if a company stops trading. [UPDATE 29/05/12: In an interview with BusinessZone.co.uk, Lord Young said loans will have to be paid back even if a business fails.]

To administer the lending, ministers have created the StartUp Loans Company, chaired by entrepreneur and former Dragons' Den judge James Caan. Also involved is Julie Meyer, boss of Ariadne Capital; Duncan Cheatle, founder of The Supper Club and Jonathan Jenkins, chief executive of The Social Investment Business.

Partner organisations will be responsible for handing out the loans and according to the Telegraph, Virgin Money, which last year acquired Northern Rock, will apply to distribute some of the funding. 

Virgin boss Sir Richard Branson originally suggested the idea of startup loans.

Commenting on the launch, prime minister David Cameron said: "I want this to be the year where people can think yes, I can do it, that we can get as many viable businesses as possible off the ground, that people can have a go, and that we see a whole new wave of entrepreneurs who start small but think big.

"Startup loans are a fantastic opportunity for young people, not only to get the financial support they need, but also to give them the confidence to believe they can do it, that they can turn that spark of an idea into the next global brand."

Lord Young took questions about the startup loans in a live webchat on BusinessZone.co.uk on 29 May. Click here to replay the webchat.