It’s a cold (funding) winter for Indian start-ups. On one hand, start-ups find it cumbersome to raise capital from angels, venture capitalists, and private equity investors, and on the other, funding through loans from banks and financial institutions has also decreased. Data from the analytics platform YNOS Venture Engine shows that debt funding in India is down 65 per cent in 2023 (until December 22), compared to 2022.

In 2023, Indian start-ups cumulatively took loans worth ₹22,194.79 crore till September 23. In the corresponding period of 2022, the value of the loan taken was ₹63,513.7 crore.

Loans from banks are an important funding source for start-ups. Close to 7 per cent of the start-ups have taken loans from banks and NBFCs. In contrast, just a little less than 2 per cent of start-ups have secured angel funding, 2.7 per cent have been funded by a Venture Capitalist and less than 5 per cent are funded by government schemes. 

Experts think that the decline in loans taken last year could be due to the challenging period faced by start-ups making them postpone expansion plans. The creation of new start-ups was also down last year. 

Relying on banks 

In India, 563 financial institutions have lent money to startups. HDFC Bank leads, having funded 3113 start-ups until December 22, 2023. The State Bank of India comes next, funding 1557 start-ups. However, SBI has disbursed the highest amount of loan at ₹39,518.2 crore. This is ₹15,162.105 crore more than the loan disbursed by HDFC Bank.

Thillai Rajan, Professor, Department of Management Studies, IIT-Madras, notes that banks have increasingly become more receptive towards start-up funding. “It is easier for a start-up founder to secure debt funding than raising capital from an angel or VC. The process is quite transparent with banks, and they are accessible for start-up founders from smaller cities and towns,” he says.

Nived Priyadarshan, founder of Xplor, a Mobility as a Service (MaaS) platform, says that his team is looking forward to raising debt funds. “We see a reluctance among VCs and angels to invest amid the funding winter. Our platform has secured a seed fund, and we look forward to raising debt in the next round, preferably from a bank. Here, the lender has zero ties to internal business decisions as long as payments on the financing are made as per the financing contract,” he says.

However, not all start-up founders prefer the debt route. For instance, Bala Sundaresan, the co-founder of Bengaluru-based start-up Nullpointer, says that at a pre-revenue stage, debt isn’t quite attractive for start-up founders and that currently, it is not an option that his team is considering. “If the revenue is good and has no dilution, debt funding is an attractive option. Equity funding, on the other hand, is more suited and easier to get in the early stages,” he says.

Delhi tops

Delhi NCR has the most number of start-ups funded through debt - 2173. While 1238 Mumbai start-ups have secured debt funding, Bengaluru comes only third in the list, with 1182 start-ups funded this way. This is at a time when Bengaluru has the most number of VC and Angel funded start-ups.

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