To take government loan for startup, or not?


Recently my government announced they are lending funds for entrepreneurs. Not sure about the interest (which I will find out later), but their terms is first 3 years no repayment needed, then on 4th year repayment starts up until the 9th year. No assets the entrepreneur has to declare.

Should I take up such loan? If yes, should I be conservative about the amount, or should be liberal by taking large amount?

Of course, it all depends on how much the startup can monetize in the first 3 years. But all these are very subjective.

Funding Government

asked Apr 4 '11 at 02:55
593 points
Get up to $750K in working capital to finance your business: Clarify Capital Business Loans

4 Answers


My personal take is that:

  1. You should carefully review the legal risks -- are you personally held to pay back the loan, or is only the company liable?
  2. You should carefully review the acceptance terms. I don't know about your situation, but in Northern Europe many Government programs of this sort have had ridiculously hard acceptance criteria, where the entrepreneur has to write several hundred pages of business plans etc in order to get accepted.
  3. You should look inside yourself, and assess your own values and ethical beliefs.
  4. Make a risk assessment for your business. What do you think your chances of building a profitable business really are?
  5. You make a decision which you own, i.e. this is your call.

From a strictly profit-seeking point of view, if the Government:

  • loans you money,
  • on reasonable terms / with simple acceptance criteria,
  • with your company as the only entity liable for paying back the loan,
  • which you can use to build out your company without giving away ownership to private investors like VC's thus retaining 100% ownership with the founder(s)
.. then, from an exclusively profit-seeking perspective that is one hell of a sweet deal for the founders.

Where is this, please? :-)

answered Apr 4 '11 at 04:16
Jesper Mortensen
15,292 points
  • Good answer! :) – Genadinik 13 years ago
  • Thanks. It's in Malaysia. – Victor 13 years ago


Most companies and start-ups fail. So you have to realize that there is a huge chance you will have to pay the loan back out of your own pocket.

That brings me to my main point: why not figure out the absolute most lean way you need to run this business and get partners who would work for equity? Just fund it yourself since over the long-term most likely that is what you will end up doing by repaying the loan.

I would not take it. Entrepreneurship is about taking risk and being creative with solutions. Just fund it yourself and figure out how to get by while it makes not money. That is what people generally do :)

answered Apr 4 '11 at 03:43
1,821 points
  • I exhausted my savings of 10k. :P – Victor 13 years ago
  • Yes that is what usually happens unfortunately. You can get a job to replenish your savings and keep working on your company at night. That way you won't depend on any loans or investors. You can just focus on growing your business. – Genadinik 13 years ago
  • Yeah, trying to land a job now. But whenever I think of reducing my time working on my startup by half, I am very depressed about it. – Victor 13 years ago


Look at the terms. Does the government get any control over your company via ownership, or board seat, or regulation, or who your vendors are...? How does the government's loan stand up after a liquidation? Are you personally liable or does the loan die with the corporation?

Look at your cash flow. How will loan repayments impact your free cash flow in year 4?

"I would not take it. Entrepreneurship is about taking risk and being creative with solutions. Just fund it yourself and figure out how to get by while it makes not money. That is what people generally do :)"

Ha ha, yeah right. Startups never take gov't money, never sell into gov't markets, never try for gov't grants or small business loans, or technology transfer.

answered Apr 4 '11 at 08:11
171 points


The Cost of Money. In the end this is a question about the cost of money. There are numerous variables that go into the cost of money. The easiest to consider of course is the interest rate. But as Jesse and Jerry have pointed out there are lots of other variables for consideration in the cost of money. These include the term, the payments, the collateral, the control. One that is often not taken into consideration when taking public money is the public disclose that may or may not be a contingency of its use.

The Decision to Take Money Clearly you need to first make the decision that your business plan would be better executed if you had access to additional resources. In other words -- you have made the decision that you would take money. It is not a good idea to take money just because it is available. You need to have a solid business plan with scenario-based assumptions that clearly show that the infusion of money results in returns that can support repayment without crippling the businesses future sustainability and desired growth -- then borrowing money might be the right choice for financing growth of the business.

The decision to act "conservative" and borrow a little or "liberal" and borrow a lot has nothing to do with the source of the money -- it has to do with what your business plan supports. Political Consideration After the analysis of if the terms are better than those you can get through other means-- and it is the best/right solution for your business and the question remains about the taking of government money-- then this is a political question.

Personal integrity is important to us all. Congruency between our beliefs and actions is important. If you strongly believe that Government stimulus money is wrong and that engagement in private business is not an appropriate role for government-- then regardless of the terms, a government backed or supported note is probably not the right choice for you.

Production not Consumption My last point, while not addressing a specific issue in the quesiton is often an issue that I am forced to address when talking with business owners about the decision to grow by leveraging a new source of revenue.

Whether the money is a loan or capital investment -- the money is to be used to drive product for the growth of your company. It is not used to increase "consumption" -- meaning paying deferred compensation, increase the owners standard of life, buying fancy things. These things are paid for not out of loan or investment money, but the increased profits of the company.

Good Luck Victor! I hope we see lots more question from you that let us know what your decision was and how it is working!

answered Apr 4 '11 at 15:00
Joseph Barisonzi
12,141 points
  • Thanks. I am very much agreeing to "Production not Consumption". It's not in me to spend the money vigorously even after getting approved with the loan. Good advices you have given. – Victor 13 years ago

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