Founders often treat equity as the only way to fund growth. It is usually the most expensive. Every rupee raised by selling shares costs you a slice of everything the company will ever be worth. Debt costs interest and discipline — but once repaid, you own what it built.
A simple rule
Use equity to fund things that are uncertain: building the product, finding product-market fit, entering a new market. Use debt to fund things that are predictable: inventory against confirmed orders, receivables from creditworthy customers, equipment that produces measurable output.
Forms of credit worth knowing
- Working-capital limits. Cash credit or overdraft facilities from banks, sized to your inventory and receivables. They need financial history and usually collateral, so start the relationship early.
- Collateral-free MSME credit. Government credit-guarantee schemes allow banks and NBFCs to lend to registered MSMEs without full collateral. Udyam registration is the first step.
- Invoice discounting. If you sell to large corporates or government entities, platforms such as TReDS let you get paid early against approved invoices.
- Equipment and asset finance. Machinery, vehicles and hardware can usually be financed against the asset itself.
- Venture debt. Specialist lenders provide term loans to startups that have recently raised equity, typically as a top-up that extends runway between rounds.
When debt is the wrong answer
- You do not yet know whether customers will pay.
- Your cash flows are lumpy and you cannot predict when repayments will be covered.
- The loan requires personal guarantees on a scale that would ruin you if the business failed.
Getting lender-ready
Lenders look at different things from equity investors: clean audited accounts, GST filings that match your revenue, banking conduct with no bounced payments, and a credit history with no defaults. Maintaining these from the first year makes debt available exactly when you need it.
Where we help
Our partners have spent years arranging debt and equity for businesses. For the companies we back, we help work out the right mix of equity and debt for each stage — and introduce them to the right lenders when they are ready.