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Are you looking at raising non-dilutive capital for your startup? Do you want to consider options other than Angel Investors and VCs? Are you looking for some initial funding to build your venture before a larger fundraise? Our recommendation for founders would be to actively consider debt funding as one of the options. Startup founders have largely focused on angels and VCs while raising capital and have underestimated the contribution that loans from banks and other financial institutions have made in funding startups. Consider this: More than 14,000 startups have raised loans totaling about ₹8.11 lakh crore from 680 institutions. You could be the next startup that can benefit from the country's financial institutions.

Loans have not been a very popular choice for early-stage founders and startups for various reasons. However, as the funding environment tightens, angel investors and VCs have been very picky. More importantly, they are keen to see some traction before making their investment decision.

Under these circumstances, debt funding sources play an important role for startups. For startups that have initial traction or have moderate capital requirements, debt funding can be a very good source of bridge capital till the next larger round. Most importantly, the cost of debt funding is also much lower than the cost of equity capital. The traditional hurdle for startups to get debt has been the lack of security or collateral. With the government providing various forms of support and guarantees from CGTMSE, the task of getting a loan has become a lot easier.

Debt funding for startups has various advantages:
  • Many debt funding programs provide flexible repayment terms. Founders need not have to give up on their shareholding, making them highly attractive when contrasted with other forms of financial support
  • Debt funding is widely available with several banks and financial institutions keen on supporting startups. Debt funding options are available for entrepreneurs of all backgrounds, communities, and startups from all industries and sectors, without any bias or discrimination, as long as the eligibility criteria are met
  • Brings immense credibility. Any startup or entrepreneur who has successfully received debt from a leading bank or financial institution earns immense credibility in the eyes of the customers and other partners