Start-up loans rapped for pitches to students

Organisations responsible for distributing more than £100m of Government money to would-be entrepreneurs have been criticised for “overly aggressive” marketing of loans to young people.

James Caan, entrepreneur and host of Dragon's Den, attends the Opening Ceremony of the London 2012 Olympic Games
A group representing academics at 98 universities has raised “widespread concerns” over the way the Start-Up Loans scheme, which is managed by former Dragons’ Den star James Caan, is being presented to students by third parties. Credit: Photo: GETTY IMAGES

A group representing academics at 98 universities has raised “widespread concerns” over the way the Start-Up Loans scheme, which is managed by former Dragons’ Den star James Caan, is being presented to students by third parties.

Ahead of an expected extension of the initiative this week, Enterprise Educators UK, which represents university staff who teach and promote entrepreneurship, complained to Mr Caan’s Start-Up Loans Company about “overly aggressive promotion of loan finance”.

Dave Jarman, the organisation’s chairman, warned that some of the scheme’s 48 “delivery partners”, which distribute the money, “have in some cases not only misleadingly promoted loans but agreed loans with students that we would not have endorsed ourselves”.

In an email to members, seen by The Telegraph, he said that existing support services for young people wishing to start a business have “been circumnavigated and disregarded” by certain delivery partners and so called “student ambassadors” who promote the scheme on campuses.

The £112m initiative, which was launched by Prime Minister David Cameron last year, provides 18-30 year-olds who want to start a business with “hassle free” low cost loans and expert advice.

An expansion of the programme to allow individuals older than 30 to apply is expected to be announced tomorrow.

Start-Up Loans typically offers unsecured loans of around £2,500, charged at a 6pc interest rate. It has so far provided almost 3,000 budding entrepreneurs from a range of backgrounds with £13m in start-up funds.

Mr Jarman met Tim Sawyer, chief executive of Start-Up Loans, and the delivery partners to discuss the concerns last week ahead of a planned meeting with the Business Department.

“Hopefully we’re going in the right direction,” Mr Jarman said.

It is understood that the Start-Up Loans Company feels it has addressed the issue and is implementing tighter oversight on delivery partners.

Mr Sawyer said the assertions in Mr Jarman’s email were “either incorrect or out of date”.

“While no programme is ever perfect, Start-Up Loans is delivering support to a large number of young people allowing them to be successful in their own right. The programme has over delivered and is rightly seen as a significant success.”

He pointed out that “students are only around 8pc of our lending compared to say 45pc [who were] unemployed” and that satisfaction with the scheme among loan recipients stands at almost 85pc.

However, Matt Smith, who used to work at one of the delivery partners, claimed “multiple” problems with the initiative remain.

Mr Smith, now director of consultancy firm Entelligence, said: “More than one of the delivery partners has been described as 'predatory’ in its marketing and lending.”

Mr Smith called for the number of delivery partners to be reduced, geographic restrictions to be placed on them and for incentives to be provided to organisations that provide good quality “ongoing” advice to young people.

James Caan, who says he is running the scheme on a “pro bono” basis, has said Start-Up Loans will help start 25,000 businesses by 2015.