Debt Fund Raise

How a debt raise runs from need to disbursal

A debt raise has a clear shape even though every case differs. First comes the purpose and the amount: what exactly is being funded, over what period, and from what cash flow it will be repaid. Then the structure: which facility or mix of facilities suits that purpose. Then the proposal and supporting workings. Then the approach to a shortlist of lenders, their appraisal, a sanction, documentation and finally disbursement.

The longest part is rarely the lender's decision. It is the gap between what the borrower has on hand and what an appraisal needs: reconciled financial statements, a believable projection, a clear statement of existing obligations, and security documents that are complete. Time spent closing that gap early is the single most reliable way to shorten the whole cycle, though no one can promise how long a particular lender will take.

After sanction there is still real work. Conditions in the sanction letter must be met, security must be created and registered where required, and drawdown usually happens in steps tied to a purpose. A borrower who treats the sanction letter as the finish line often discovers the process was only two thirds done.

Choosing between term debt, working capital, project debt and blended structures

Term debt funds assets and capacity that will produce returns over several years: machinery, a building, a plant upgrade. It is repaid on a schedule, sometimes after an initial moratorium during which only interest is paid. Working capital funds the cycle of buying, making, storing and selling, and revolves against stock and receivables. Project debt is term debt sized and secured against a specific project's own cash flows and assets.

The most common structural error is mismatch. If a stock-funding line is used to buy machinery, the line gets locked up and the business starves for operating cash. If a long term loan is used to cover seasonal stock, you pay for tenure you do not need. A blended structure, such as a term loan for the capital item plus a working capital limit for the added operating cycle it creates, is often the honest answer for an expansion.

Choosing well starts with the repayment source. If the money repays itself within one operating cycle, it is working capital. If it repays from profits over several cycles, it is term debt. If it repays only from a new project that does not yet exist, it is project debt and the lender will study the project more than your history.

• Repays within a cycle of buying and selling: working capital
• Repays from profits over several cycles: term debt
• Repays from a new unit's own earnings: project debt
• Does several of these at once: a blended structure with separate limits

What the lender is really reading

A credit team reads a proposal as an argument about repayment. The first question is whether the business generates enough surplus, after its existing obligations, to service the new debt with a comfortable margin. That is usually tested through a debt service coverage view and a handful of leverage and liquidity ratios, applied to history and then to your projections.

The second question is character and conduct: how the business has handled past credit, how the existing bank account behaves, whether statutory dues are paid on time, whether the promoters are consistent in what they disclose. A projection is believed or doubted largely on how well it connects to the past. A sharp jump in turnover with no change in capacity, customers or working capital invites questions.

The third question is what happens if things go wrong. This is where security, margin, promoter contribution and the exit routes of the facility come in. Lenders prefer a case where the promoters have meaningful money of their own in the business, because it signals shared risk.

Security, collateral and sureties

Most institutional debt is secured. Primary security is the asset the loan itself creates or funds, such as the machinery or the stock. Collateral security is additional cover, often immovable property owned by the business or its promoters. Some facilities also ask for personal sureties from promoters or directors, which means those individuals become liable alongside the company.

It is worth reading exactly what is being signed. A surety can survive after you leave the company, and collateral property may be unavailable for other borrowing for as long as the charge exists. Some schemes designed to support MSMEs can reduce or remove the collateral requirement for eligible borrowers, but eligibility and terms change, so check the current position with the lender.

Lalsar can help you map what security you realistically have available, what a lender is likely to ask for, and how to present assets accurately. It cannot negotiate security away or promise a particular requirement.

Who decides what: borrower, institution, advisor

The borrower decides the purpose, the amount worth asking for, how much risk and dilution of control to accept, and whether to sign. The lender decides whether to sanction, at what size, at what price, on what security and conditions. Those decisions follow the lender's credit policy and are not negotiable in the way a shop price is.

The advisor's role sits between the two. Lalsar Holdings helps you work out the right structure, prepares the proposal and workings, shortlists and approaches suitable institutions, and coordinates through sanction and closing. It does not lend, does not set terms, and does not speak for the lender. Your chartered accountant and legal counsel keep their own roles on financial statements, tax, and security documents.

Keeping these boundaries clear protects you. If anyone promises a sanction or a rate before a lender has reviewed your case, treat that as a warning sign rather than a service.

Banks, NBFCs and other sources

Banks generally offer a lower cost of funds but follow stricter documentation and slower processes. Non-banking finance companies often move faster and may be more flexible on structure or on borrowers with thinner track records, usually at a higher cost. Some institutions specialise by sector, such as agriculture, equipment or housing, and a good match with a specialist can matter more than a general-purpose lender.

Choosing is a trade-off between cost, speed, flexibility and the long-term relationship. A business that expects to borrow repeatedly usually benefits from building a steady primary banking relationship, while a one-time need with urgency can justify a different route. Lalsar approaches a shortlist rather than a single institution, but the shortlist should reflect your priorities, not ours.

Risks in a debt raise and how they are managed

The biggest risk is over-borrowing: committing to repayments the business can meet only if everything goes to plan. Stress-test your own projections by asking what happens if sales are lower, receipts are slower, or input costs rise, and size the facility so the answer is survivable. A lender doing the same test is protecting you as well as itself.

The second risk is conditions and covenants, such as restrictions on further borrowing, dividends or change of control, and requirements for regular reporting. Breaching a covenant can have consequences even when every instalment is paid. The third is documentation risk: security created incorrectly or conditions left unmet can delay or derail disbursement.

Managed well, a debt raise leaves the business with a facility it can service, a record of clean borrowing, and lenders who are more willing the second time. Managed badly, it leaves a stressed account that closes doors. If you are already seeing strain, speak early with the Apex Solutions side of Lalsar about stress and restructuring options.