Eligibility for Term Loans

While eligibility criteria can vary between lenders, startups generally need to meet the following requirements:

1. Business Age and Registration

• Most lenders require the startup to be formally registered.
• Some banks prefer at least 1–2 years of business history, though certain loan schemes target early-stage companies.

2. Creditworthiness

• A good personal and business credit score increases approval chances.
• Lenders assess repayment capacity based on financial records.

3. Business Plan and Revenue Model

• Startups must show a clear business model with revenue projections.
• Strong documentation improves credibility with lenders.

4. Collateral or Guarantees

• Depending on the lender, term loans may require collateral such as property, machinery, or personal guarantees.
• Some government-backed programs may offer collateral-free term loans for startups.

Benefits of Term Loans for Startups

Access to Larger Capital

Term loans provide a lump sum of money that startups can use for expansion, infrastructure, or working capital.

Structured Repayment

With fixed installments, startups can plan cash flow and budget effectively.

Lower Interest Rates

Compared to credit cards or unsecured financing, term loans often come with lower interest rates, especially when collateral is involved.

Business Credit Growth

Timely repayment of term loans helps build the startup’s credit profile, which can support future financing needs.

Risks of Term Loans for Startups

Debt Burden

Regular repayments can put pressure on cash flow, especially for startups with irregular income.

• Collateral Risk

If the startup defaults, the pledged collateral may be seized by the lender.

Limited Flexibility

Unlike equity funding, term loans must be repaid regardless of business performance, which can limit flexibility in tough times.

Early-Stage Challenges

Few startups without financial history may struggle to qualify, or they may face higher interest rates.

Key Takeaway

Term loans can be an effective financing tool for startups looking to scale operations, purchase assets, or manage working capital. However, founders should carefully evaluate eligibility requirements, repayment capacity, and potential risks before applying. A well-planned approach ensures that term loans become a growth enabler rather than a financial burden.