Lalsar Capital · Question

How do I decide the order for raising a loan and bringing in an investor?

Short answer

Decide the order by asking which source strengthens the other. If the business has steady cash flow and assets to offer, debt first usually costs less in ownership. If the balance sheet is thin or the project is new, bringing equity in first usually makes later borrowing possible. Neither order is correct for everyone, and each changes what the second party will accept.

In more detail

Lenders and investors read each other's presence as a signal. A lender sees equity as the owners' and outsiders' stake in the business, which cushions the loan. An investor sees existing debt as a claim that ranks ahead of theirs and as a monthly drain on cash.

Debt first tends to suit a business that already earns reliably and mainly needs funds for machinery, stock or a building. You keep ownership, and the investor later negotiates around a known repayment schedule.

Equity first tends to suit a business whose net worth is thin, whose project is still unproven, or whose promoter cannot bring in the contribution lenders expect. Fresh equity also improves the ratios lenders check, so the loan terms may become easier.

Existing loan documents often require the lender's consent before new shares are issued or ownership changes. Equity term sheets often restrict extra borrowing without investor approval. Read both before starting either conversation.

How each order tends to play out
Order	Usual effect
Debt first	Less dilution, but repayments limit what an investor will pay for
Equity first	Stronger balance sheet, but ownership is shared earlier
Parallel	Faster, but both sides must be told about each other

A packaging unit planning a second line

A packaging business with stable orders needs a new line. It raises a term loan first, because cash flow can carry the repayment. A year later, with the line running and margins visible, it opens talks with an investor for a larger expansion and gets a clearer view of its value.

Tell each party the full picture

Whichever order you choose, disclose the other raise early. Surprises discovered during due diligence damage trust more than the facts themselves.

Key points

Equity strengthens the balance sheet; debt preserves ownership. Choose by which gap is more urgent.
Existing loan terms may need lender consent before new shareholders come in.
Investor term sheets may limit further borrowing, so check them before signing.
Parallel raises work only when both sides know about each other.
Match the order to your cash flow, not to what is easiest to arrange.

Who this applies to

Promoters planning expansion who are weighing a loan against bringing in an outside shareholder.
Owners whose business already carries some debt and who are also approaching investors.
Finance heads sequencing a funding plan across several quarters.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.