The Rise of Debt Financing for Indian Businesses: Trends to Watch

India’s business world is buzzing, with over 125,000 startups and tons of small and medium businesses (SMEs) driving the economy. While many businesses used to get money by selling shares or taking bank loans, more are now choosing debt financing—borrowing money they pay back with a little extra. In 2025, debt financing is becoming super popular because it’s flexible and lets businesses keep control. This article explains in simple words why debt financing is growing, the big trends to watch, and how it helps Indian businesses.

What Is Debt Financing?

Debt financing is when a business borrows money and promises to pay it back over time, usually with some extra money called interest. Unlike selling shares, where businesses give up part of their company, debt lets them stay in charge. Common types include bank loans, bonds (like IOUs sold to investors), or special loans for startups called venture debt. Indian businesses, from startups to big companies, are using debt to grow without sharing ownership.

Why Debt Financing Is Getting Popular

Several things are making debt financing a go-to choice for Indian businesses:

• Growing Economy: India’s economy is doing well in 2025, and businesses need money to grow, build new things, or create new products. Debt is an easy way to get that cash.
• Government Support: The Reserve Bank of India (RBI) and other regulators are making it easier to borrow with rules like the Insolvency and Bankruptcy Code (IBC), which helps lenders get their money back if a business can’t pay.
• Avoiding Share Sales: After a tough time for startups in 2022–2023, many don’t want to sell big chunks of their company at low prices. Debt lets them raise money without giving up control.
• Digital Boom: With over 900 million people online in India, digital tools like UPI and smart apps make it faster to check if a business can borrow and process loans.

Top Trends in Debt Financing

1. More Startups Using Venture Debt

Venture debt is a special loan for startups that are growing fast but don’t have a lot of money yet. In 2023, startups raised $1.2 billion through venture debt, 50% more than the year before, with 175–190 deals. Companies like Mensa Brands (online shopping) and Licious (meat delivery) use venture debt to keep growing, buy other businesses, or wait longer before selling shares.

• Why It’s Cool: Venture debt doesn’t need property as a guarantee, just things like future sales or ideas. It’s flexible and fits startups’ needs.
• Example: Perfios, a finance app, used venture debt to grow without giving away ownership.
• Trend to Watch: Venture debt will spread to new areas like farming tech and healthcare, with lenders like InnoVen Capital giving out over $800 million to 200+ startups since 2008.

2. Growing Private Debt Market

Private debt is money lent by non-bank groups, like special finance companies or funds, to businesses that can’t get bank loans easily. By late 2024, this market is expected to be worth over $18 billion in India, helping medium-sized companies grow.

• Why It’s Cool: These loans are made to fit a business’s cash flow, and new rules make it safer for lenders to get their money back if something goes wrong.
• Example: Big companies like Oyo and Ola borrowed $1 billion and $1.5 billion through special loans called term loan Bs.
• Trend to Watch: More global investors will join this market because India’s rules are clear and the economy is growing, making it a great place for private debt.

3. More Companies Selling Bonds

In 2024, Indian businesses raised a record INR 10.67 trillion ($124.81 billion) by selling bonds, up 9% from 2023. Bonds are like borrowing from lots of people at once, and companies use them instead of bank loans to get money at better rates.

• Why It’s Cool: Bonds help big businesses fund things like factories or power plants without depending on banks.
• Example: Public sector banks are buying lots of these bonds, especially for power and building projects.
• Trend to Watch: The RBI’s Retail Direct platform, with over 1.5 lakh people investing by 2024, is making it easier for regular people to buy bonds, which helps businesses raise more money.

4. Helping Businesses That Do Good

Businesses that focus on helping people or the planet, like schools or clean energy companies, are getting more debt financing. These “impact” businesses need about INR 1,564 crores ($216 million) more than they’re getting because they don’t have much property to offer as a guarantee.

• Why It’s Cool: New ways of lending, like looking at future earnings, are helping these businesses get loans. Special funds and bank partnerships are stepping in too.
• Example: A 2020 study found 60% of 422 impact businesses could repay loans but needed easier access to money.
• Trend to Watch: Expect more loans designed for these businesses, and new rules might treat impact investments as a special kind of funding.

5. Borrowing from Other Countries

Indian businesses are borrowing from abroad through External Commercial Borrowings (ECBs), like foreign loans or bonds. By June 2024, India’s foreign debt was $682 billion, growing fast. Places like GIFT City make it easier with flexible rules for global banks like HSBC to offer loans.

• Why It’s Cool: Foreign loans often have lower interest rates, especially for big projects like solar farms.
• Example: India’s clean energy sector is getting lots of foreign money, thanks to plans like the National Green Hydrogen Mission.
• Trend to Watch: As India builds stronger ties with countries like the US, more businesses will borrow from abroad, especially in energy and factories.

Challenges of Debt Financing

1. High Costs

The government borrows a lot (83% of India’s economy in 2025), which pushes up interest rates. This makes loans more expensive for businesses, especially startups with little money coming in.

2. Hard to Get Loans

Banks often ask for property or a strong credit history, which startups and small businesses don’t always have. Even venture debt needs some proof of success, which can be tough for new companies.

3. Bond Market Issues

The bond market doesn’t have much trading after bonds are sold, with daily trades stuck at INR 5,722 crores since 2018. This makes it harder for investors to sell bonds, which can scare them away.

4. Risky Foreign Loans

If the Indian rupee loses value, paying back foreign loans gets more expensive. In 2020, over half of India’s foreign debt was in US dollars, which adds risk.

Opportunities for Businesses

1. Grow Without Sharing Ownership

Debt lets businesses grow without giving up parts of their company, which is great for founders who want to stay in charge. Venture debt is cheaper than selling shares.

2. Funding Big Projects

Debt is perfect for big things like building roads or solar plants, helped by government plans like the National Infrastructure Pipeline, aiming for $1.4 trillion in projects.

3. Digital Loan Apps

New tech apps use smart tools to check if a business can borrow, making loans faster and easier, especially for small businesses.

How Businesses Can Use Debt Smartly

• Pick the Right Debt: Choose venture debt for startups, bonds for big companies, or foreign loans for cheap rates.
• Plan Cash Flow: Make sure the business can pay back loans by matching payments to income.
• Use Digital Tools: Work with platforms like CredAble or KredX to get loans quickly.
• Protect Against Risks: For foreign loans, plan for currency changes to avoid extra costs.
• Get Expert Help: Talk to financial advisors to find the best debt deals.

What’s Next for Debt Financing in India

Debt financing will keep growing in 2025 as India’s economy and digital tools get stronger. New rules will make it easier for businesses to borrow, and more global investors will join in. Startups in new fields like AI, clean energy, and farming tech will get more loans, and small businesses in smaller cities will benefit too. Government programs might team up with lenders to offer better deals, helping more businesses grow.

Conclusion

Debt financing is becoming a big deal for Indian businesses because it’s flexible, keeps owners in control, and works for all kinds of companies. Trends like venture debt, private loans, bonds, impact funding, and foreign borrowing are opening new doors. While challenges like high costs and tough rules exist, businesses can succeed by planning smartly and using digital tools. As India’s business world grows, debt financing is helping startups and SMEs build a brighter, stronger future.

Last Updated on: Saturday, July 12, 2025 5:15 pm by Puneeth kamalapuram | Published by: Puneeth kamalapuram on Saturday, July 12, 2025 5:15 pm | News Categories: News

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