How to Analyse the Best Time to Take a Start-Up Business Loan?

In India, many people are choosing the path of entrepreneurship, thus today we see an increase in the number of start-up companies. However, such organizations are also in need of initial working capital and funds for the set-up. Recently, the government came up with several schemes to boost the prospect of new companies and ventures, in form of small business loans. Many lenders, banks, and NBFCs also offer start-up business loan to people today.

So, you may ask, what is the difference between a standard business loan and a loan for start-up? Below we have listed out the similarities and differences between the both.


Standard Business Loan Start-Up Loan
1) It is meant for a well-established business. 1) It is meant for a new business.
2) All financial and supportive documents needed. 2) All financial and supportive documents needed.
3) Minimum 3 years vintage required 3) Minimum 6 months or 1-year vintage required
4) Loan amount is between Rs. 1 lakh Rs. 1 crore. 4) Loan amount starts at Rs. 50,000 and up to few lakhs.
5) Given to companies of all sizes. 5) Primarily given to small and medium-sized enterprises.


What Could Distinguish Your Company as a Start-up?

  • It is simple to understand; especially given the number of years your company has been in existence. If it is less than 3-years old, it generally states the organization is comparatively new.
  • Also, if your company has been dormant for a long time, and you wish to jumpstart it again, it may still be observed as a start-up, since not enough financial history would be there to gauge the creditworthiness of the firm, nor many business activities would have taken place to account it as an established organization,
  • The annual revenue and the number of employees in the company may be evaluated. Usually, a small business is the one that has less than 100 employees with annual turnover less than Rs. 25 crores.

What is the Right Time to Take a Business Loan for Your Start-Up?

When it comes to a new company, you must be careful about the advances and loans. Financial institutions are extra careful when lending to a start-up, usually the organizations that do not have much history in the industry, nor enough financials to gauge the creditworthiness. Though it is tough to ger a start-up loan, if things are done the right way, then it is possible to get the required amount. But, what is the best time to avail funds for your new venture? Here is the answer to it.

  • Business is Doing Well: If your company is performing well in all aspects, especially finances, then it is the suitable time to apply for the start-up loan. It is advisable not to apply for the loan, when the company is not making much profit or showing grim chances of balancing out the finances.
  • Young Age: If you are in early 20’s and 30’s, and have a start-up, you can consider a loan for the company. The younger you are, the bank will consider you an eligible candidate and offer you better loan amount and terms. That does not necessitate, you cannot get funds if you are aged above 40’s. In fact, you can get loan up to 65 years of age, up to the loan maturity.
  • Management Team: If you have reliable people who have good credit score, in the management team as well as workforce, then financial institutions could rely on the company and offer the loan.
  • Surety About Profits: If you are sure to generate sufficient profit in near future, then you can go for a business loan for a start-up. It is also one of the ideal period to expand and grow your company.
  • Expected Investment and Returns: If you have current investment planned that would reap handsome returns shortly, or within the period of loan repayment, then you may look for a loan for essential expenses.

Which is the Worst Time to Seek a Start-Up Business Loan?

There are times when you should not ask for a business loan for the start-up. We have listed out those moments, when it is better to not try avail funds from banks and NBFCs.

  • Very New in Business: If your company is just a few days or weeks old, it is better not to approach for a standard business loan, as the minimum number of years for a company’s existence should be at least a year, to get some funds. However, there could be government schemes that can afford a loan to very new enterprises.
  • If You Are Below 21 or 23 Years of Age: Yes, you are 18 years of age, an adult to take decisions and give direction to your life. However, lending institutes consider anyone below 21 or 23 years of age, as too young to offer loans. Thus, you may have to wait a little longer to take out a loan.
  • Criminal Record of Co-Applicants: If the co-applicants and partners have any criminal record, and you apply for the loan, there is a high probability that the application will be rejected. You should try and resolve any ongoing criminal cases of the co-applicants before looking for funds.
  • Off-Season: Some companies make the most during a certain season, and then for a long time, they do not actually generate any revenue. For instance, a gift shop that sells goodies for Christmas, will not make much sale during non-Christmas period. If your organization fits this scenario, then avoid checking for a loan at the time of off-season, since timely repayments may not be possible from your end.
  • Unsure About Future Prospects: Even though your company is doing well today, but you are unsure about it’s future or do not have a plan for the business for at least next 5 years, then you should either work on the business plan and apply for the funds, or not seek the loan at all. Since banks are focused on business prospects and plans, they may refuse to furnish a loan, if these both categories are not satisfactory.

By following the above considerations, you will be able to understand the best time to look for a business loan for a start-up. Click here to know more about the Business Loan


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