Many startups in India do not have an idea of how the capital structure of their company will affect them and their company. Adding debt can be a smart way to retain a higher ownership of the company and meet government regulations in certain sectors (Flipkart and Myntra received ED notice for allegedly exceeding the foreign equity stake holding beyond what is permitted). Companies must use debt to finance capital equipment/expenses and expensive venture equity for product development and as a bridge between operational income and expenses. Raising debt is more challenging and may require collateral and personal guarantees, but is worth the extra effort.
Sources of debt
- Collateral Free Loans for SME upto INR 10 million
- Banks – secured debt at 12%, unsecured business loans at 18%
- Silicon Valley Bank
- Ask your VC, whether she can arrange