10 Best Practices for Raising Debt in India for Small and Mid-Sized Corporates

Raising debt in India’s dynamic financial landscape requires strategic planning, especially for small and medium-sized enterprises (SMEs) and mid-sized corporates navigating high interest rates, regulatory complexities, and economic volatility. With the 2025 Union Budget enhancing MSME credit access, these 10 best practices can streamline debt fundraising, ensuring optimal terms and sustainable growth.

Seeking professional help can make the fund raising process smooth and cost effective

1. Maintain Strong Financial Records: Robust, transparent financials are critical. Banks and NBFCs prioritize audited balance sheets, cash flow statements, and tax returns to assess creditworthiness. Regular updates and clean records reduce scrutiny and improve loan approval chances.

2. Build a High Credit Score: A strong CIBIL score (above 750) secures better rates and terms. Timely repayments, low credit utilization, and diverse credit types boost scores, making SMEs attractive to lenders.

3. Choose the Right Debt Instrument: Match the debt type to business needs—term loans for expansion, working capital loans for liquidity, or invoice discounting. Mid-sized firms can explore corporate bonds for larger sums.

4. Leverage Government Schemes: Utilize collateral-free options like PMMY (up to ₹10 lakhs) or CGTMSE-backed loans covering 85% of defaults. Schemes like Stand-Up India benefit women and SC/ST entrepreneurs, reducing reliance on high-cost debt.

5. Prepare a Robust Business Plan: Lenders demand clear repayment plans. A detailed pitch showcasing revenue projections, market traction, and fund utilization (e.g., equipment or inventory) builds confidence. Highlight alignment with India’s growth sectors like renewables or tech.

6. Negotiate Competitive Terms: Compare rates (8-18%) and tenors across banks, NBFCs, and fintechs. Negotiate lower processing fees or flexible repayment schedules, especially with platforms like LenDenClub for P2P lending.

7. Optimize Collateral Offerings: While collateral-free loans are available, offering assets like property or receivables can secure larger amounts or lower rates. Ensure valuations are current to avoid delays in approval.

8. Engage Financial Advisors: Experts or platforms like Startup India Hub streamline applications, ensuring compliance with RBI and SEBI norms. Advisors help structure debt to minimize costs and align with business cycles.

9. Explore Alternative Debt Models: Beyond banks, consider revenue-based financing (RBF) from Velocity or factoring for quick liquidity. These tie repayments to sales, easing cash flow pressures for e-commerce or retail SMEs.

10. Stay Compliant and Monitor Risks: Adhere to loan covenants and RBI regulations to avoid penalties. Regularly assess economic risks like inflation or currency fluctuations, which can impact repayment capacity, especially for export-oriented firms.