Debt refers to capital that asks for a fixed return independent of the profits of the business. Lower the interest rate, the more stringent the terms that come with it and more the collateral that is demanded.

1) Raising Venture Debt

Venture Debt is a loan for early stage companies. However, most of these loans are invested along with equity investment that comes from Venture Capital funds.

2) Raising a term loan

This type of loan is usually available only to capital intensive industries or to companies that can offer collateral to the lender. Loans from banks are the cheapest. Banks are the cheapest. NBFCs also provide such financing but they provide these loans at higher interest rates as compared to banks.

3) Raising working capital loan

This is one of easiest ways for entrepreneurs to raise capital. Working Capital finance is relatively easier to get. The most common type of working capital loans is receivables discounting. In this form of finance, outstanding receivables from well known customers are used  as collateral and loans are provided by banks to companies. NBFCs also provide such financing but they provide these loans at higher interest rates as compared to banks.

4) Sale and leaseback

If your company is asset heavy, as in, it has assets such as an office space, machinery, then you can explore this financing channel. In this type of financing, a sale and leaseback company buys an asset from your company’s books and lends it back to you for a long-term rental contract. This structure frees up capital for you to use for your business without changing the operations as you can continue to use the asset even after getting it leased back.

5) Private debt funds and structured finance

Structured finance is a form of high cost debt. Usually it refers to a lender providing a loan that includes an equity component as well.

6) HNIs, Angel investors and Family Offices

As mentioned in the equity section mentioned above, these entities also provide debt financing. This is an expensive source of financing.

 

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