Business Loan

What Are The Different Pros And Cons Of Startup Business Loan


There are many different types of loans that businesses can seek when they’re starting up. One of the most popular options is an MSME business loan or a startup business loan. 

However, this type of loan comes with some pros and cons. You’d want to be aware of these before deciding if it’s the right option for you. 

This blog will look at the advantages and disadvantages of taking a startup business loan or an MSME business loan. Let’s dig in!

What is a startup business loan?

A startup business loan can also be called an MSME business loan. It is a type of small business loan that can be useful for businesses in their early stages. These loans help initial-stage entrepreneurs and their businesses grow and expand.

Startup business loans are ideal for companies with little or no credit history. The reason is that they don’t require collateral upfront. Startup businesses typically have high start-up costs. This means they often struggle to meet debt obligations as they grow. An MSME business loan can help these companies cover those expenses while they continue to build their credibility and financial stability.

If you’re interested in applying for a startup business loan, speak with an experienced lender. They could advise you on the best option based on your specific situation and goals. And remember: always consult a lawyer if any legal matters are involved in your loaning decisions!

Advantages of a Startup or MSME Business Loan

Startup business loans are indeed a great funding option for entrepreneurs. Let’s strengthen this point by looking at some of the obvious advantages of taking a startup business loan.

Own Control

Increasing your equity funding through investors can give them more oversight and control of the company. Raising money by selling shares finds you investors who are eager to know what’s happening with their investment. Hence, they may want board seats or signing authority over large purchases.

On the other hand, when you get a loan, it’s not just the money that commits to certain covenants—your business does too. You can decide what kinds of operations will be allowed within the business. You will hold power over how these conditions will affect your business. You will decide when repayments must be made based on those decisions. All in all, you will have complete control.

Build Business Credit

Taking a startup business loan can be one of the best decisions you make when building your business credit. By taking out a small loan for your growing startup, you’ll show lenders that you can handle responsibility and manage funds appropriately. This will help you get better terms on future loans and loans from different lenders.

Plus, other opportunities (such as with angel investors) will come more easily with good business credit. Strong financial stability allows businesses to operate in an uncertain environment with greater flexibility and agility.

Saves personal wealth

As anyone who has started a business knows, it takes a lot of money to get a new venture off the ground. From rent and office supplies to marketing and employee salaries, there are numerous expenses to account for. And if you’re self-funded, those expenses can quickly eat into your savings. A startup business loan can significantly help you in this case.

By taking out a loan to finance your business, you can keep your personal wealth intact. You can also use it as collateral for the loan. This can be especially helpful if you’re planning on starting a business with high start-up costs, such as a restaurant or manufacturing company. So, if you’re looking to save your personal wealth while financing your new business, a startup business loan may be your best option.

Keep Equity to Yourself

Taking a startup business loan can be a valuable tool in helping to keep equity to yourself. By taking out a loan, you can access financing that will allow you to hold on to more company shares.

As previously discussed, this can give you greater control over the direction of your startup and help protect it from potential threats or outside investors. 

Disadvantages of a Startup Business Loan

While we have discussed the advantages of a startup business loan, there are also some cons. Let’s read what they are!

MSME business loans have high interest rates.

Many small businesses don’t realise startup business loans have high interest rates. This is a common misconception. Many people think that all startup business loans have low interest rates. However, this is not always the case. Some startup business loans have extremely high interest rates that can be damaging to a small business’ financial stability.

If you’re considering a startup business loan, it’s important to research and compare different lenders’ offers side by side.

MSME Business Loans are Not Easy to Get

Startup business loans are not easy to get. Several factors determine whether or not a startup will be approved for a loan. This includes the company’s credit score, revenue, profitability, and track record in terms of paying back previous loans. Loans from traditional lenders such as banks can take up to six weeks to process. They may require collateral (usually 50% of the loan value).

To qualify for an alternative lending platform loan, your business must have:

  • A clear strategy
  • High potential
  • Strong market position
  • Sound team
  • Realistic projections

Startup loans or MSME business loans can restrict cash flow.

A startup loan can give you the capital you need to get your business off the ground. However, it’s important to be aware of the potential downsides. One potential problem is that a loan can restrict your cash flow. This is because you’ll have to make regular loan repayments. This can leave you with less money to invest in your business. Additionally, if your business isn’t successful, you’ll still be responsible for repaying the loan.

As a result, it’s important to carefully weigh the pros and cons of taking out a loan before making a decision. But if you plan and do things right, a startup loan can be a useful tool for getting your business off the ground.

Parting Words

So, if you are a startup business owner searching for some quick cash, a startup business loan may be the right option. Always weigh the pros and cons carefully before making your decision.

Take help from the finance experts at Piramal Finance to get rid of all your doubts and concerns related to MSME business loans. Contact us today!