Many founders of small and medium-sized enterprises (SMEs) lack a clear financing strategy. They might take bank loans, attract equity capital from interested investors, or borrow from friends and relatives. Such a diverse approach can cause cash flow problems over time because the source of capital does not match the real needs of the business.
During the MSME Sparks 2026 event, which was held virtually from June 22 to 25 and concluded on June 26 in ITC Gardenia, Bengaluru, Eklavya Gupta, founder of Recur Club, delivered a presentation as part of a discussion titled 'The Right Capital for the Right Growth.' Recur Club helps SMEs find lenders offering non-dilutive capital, meaning debt, instead of equity capital. Gupta emphasized that the decision to choose between debt and equity is not a one-time action; it is determined by the reason the business needs money, the duration for which the funds are needed, and the level of risk.
Gupta advised founders to ask themselves the first question: 'What exactly is this capital needed for?' A business facing payment delays from clients or excess inventory needs short-term working capital. For such situations, tools like invoice discounting, typically calculated for 60–120 days, are suitable.
The situation with long-term expansion is different. Building a factory or purchasing equipment can usually be financed through banks and NBFCs, as such investments are secured by physical assets. However, growth initiatives, such as entering a new market, increasing the sales department, or investing in marketing, are harder to finance with traditional lenders. These often require alternative lending structures or other forms of long-term capital.
In Gupta's opinion, the choice between debt and equity boils down to one question: how predictable is the outcome? He believes that founders too quickly lean towards equity capital. 'If the outcome is uncertain, use equity capital because then you don't have to return it if it doesn't work,' he stated, referring to research and development or companies without sufficient revenue history to qualify for a loan.
In all other cases, he asserts that debt is the more effective option. Gupta compared equity capital to a house: 'Once you give away a room, you won't get it back. Debt is like renting.' He also shared general guidelines for managing leverage: startups should avoid exceeding a debt-to-equity ratio of 2x, mid-sized companies can reach around 3x, and more established enterprises up to 4x. Exceeding these limits, he warned, leaves little room to absorb a downturn.
India's lending ecosystem has transformed significantly in recent years. New underwriting models, based on GST declarations, bank statements, and credit bureau data, have made formal credit accessible to many businesses that previously struggled to obtain loans, regardless of whether they operate online or offline. Nevertheless, Gupta noted that the core principle of lending remains unchanged: 'Cash flow is king. Any financier looking at your business looks not at the accounting records. They look at the cash flow.'
Strong financial performance alone is insufficient if lenders cannot easily verify it. Compliance is often the first check. Missing GST or TDS filings can raise concerns even before lenders assess the business itself. Record-keeping becomes just as important when companies seek large loans. Gupta noted that when debt requirements exceed approximately 25 lakh rupees, audited financial statements become a minimum requirement, replacing informal records.
He also pointed to related-party transactions as one of the most common mistakes of founders. Selling or buying goods from companies they also own makes it difficult for lenders to distinguish between real business activity and internal accounting, causing many to write off such revenue. Customer concentration raises similar concerns: a business heavily dependent on one or two clients may appear stable, but losing one client can significantly impact its revenue, increasing credit risk.
Gupta also refuted the notion that SMEs outside major cities face a structural disadvantage in attracting capital. Due to the expansion of underwriting to second and third-tier cities, as well as the emergence of regional lenders, he believes that location matters less than the fundamental foundations of the business. 'The business must have its strengths, the business must meet the requirements, the business must grow,' he said. 'That is more important than your location.'
Enterprises in remote areas can still benefit from working with lenders specializing in those markets, but geography is no longer the main obstacle. Ultimately, Gupta argued that attracting capital, whether debt or equity, should never become a last-minute event. He added that companies that prepare in advance negotiate from a position of choice, not necessity.
South Africa is taking on additional debt obligations to finance crucial infrastructure projects, even as billions of rand are spent annually servicing existing loans.
The latest borrowing, amounting to $1.5 billion (approximately R24.7 billion), was secured from the World Bank. The purpose of this loan is to support reforms in key sectors, including transport, water supply, and energy, with the hope of stimulating economic growth and job creation.
However, this influx of funds comes amid rising debt servicing costs, as the government spends over R1 billion daily to repay existing obligations. Finance Minister Enoch Godongwana previously acknowledged that increasing debt servicing costs are putting pressure on public finances.
Godongwana stated that the National Treasury recognizes the pressure that rising debt servicing expenses place on the fiscal system and has implemented measures to prevent further displacement of spending on core priorities by debt servicing.
Despite official assurances, the country's economy continues to struggle, characterized by slow growth, high unemployment, and constant pressure from rising debt costs on public finances. It is projected that South Africa's total national debt will reach R6.3 trillion in the 2026/27 fiscal year, representing 77.3% of GDP.
The South African Federation of Trade Unions (SAFTU) has already rejected the World Bank loan. The union argues that further borrowing could increase the country's dependence on debt. SAFTU demanded that the government publish the full agreement, including all terms and political commitments associated with this financing.
The union expressed particular concern that this loan is denominated in US dollars. Although the government currently values it at approximately R25 billion, the actual cost to South African taxpayers will depend on future movements in the rand exchange rate against the US dollar. The union warned that if the rand depreciates, as it has repeatedly over the last three decades, the cost of servicing and repaying this loan could rise significantly, creating a much heavier burden than what is presented to the public.
Many founders of small and medium-sized enterprises (SMEs) lack a clear financing strategy. They might take bank loans, attract equity capital from interested investors, or borrow from friends and relatives. Such a diverse approach can lead to cash flow problems over time, as the source of capital does not match the real needs of the business.
During the MSME Sparks 2026 event, which was held virtually from June 22 to 25 and concluded with a grand finale on June 26 at ITC Gardenia, Bengaluru, Eklavya Gupta, founder of Recur Club, delivered a presentation as part of a discussion titled 'The Right Capital for the Right Growth.' Recur Club helps SMEs find lenders who offer non-dilutive capital, meaning debt instead of equity.
Gupta emphasized that the choice between debt and equity is not a one-time decision. It depends on the reasons why the business needs money, the duration of its use, and the level of risk.
According to Gupta, the first question founders should ask is: 'What exactly is this capital needed for?' A business facing payment delays from clients or excess inventory requires short-term working capital. For such situations, instruments like invoice discounting, typically calculated for 60–120 days, are suitable.
Long-term expansion scenarios, such as building a factory or purchasing equipment, can most often be financed through banks and NBFCs, as these investments are secured by physical assets. However, growth initiatives, like entering a new market, expanding the sales department, or marketing investments, are harder to finance through traditional lenders and often require alternative lending structures or other forms of long-term capital.
For Gupta, the decisive factor in choosing between debt and equity is one question: how predictable is the outcome? He believes that founders too quickly lean towards equity. 'If the outcome is uncertain, use equity because then you don't have to return it if it doesn't work,' he stated, referring to research and development or companies without sufficient revenue history to qualify for a loan.
In all other cases, he believes debt is the more effective option. He compared equity to a house: 'Once you give away a room, you won't get it back. Debt is like renting.'
Furthermore, he shared general guidelines for managing leverage: startups should avoid a debt-to-equity ratio above 2x, mid-stage companies can reach around 3x, and more established enterprises up to 4x. Exceeding these limits, he warns, leaves little room to absorb a downturn.
India's financial ecosystem has undergone significant changes in recent years. New underwriting models, based on GST declarations, bank statements, and credit bureau data, have made formal credit accessible to many businesses that previously struggled to obtain loans, regardless of whether they operate online or offline. Nevertheless, Gupta noted that the core principle of lending remains unchanged: 'Cash flow is king. Any financier looking at your business looks at the cash flow, not the accounting records.'
Strong financial performance alone is insufficient if lenders cannot easily verify it. Compliance is often the first check. Missing GST or TDS filings can raise concerns even before lenders assess the business itself. Accounting becomes just as important when companies seek large loans. Gupta noted that when the debt requirement exceeds approximately 25 lakhs, audited financial statements become a minimum requirement, replacing informal records.
He also pointed out related-party transactions as one of the most common mistakes of founders. Selling or buying goods from companies they also own makes it difficult for lenders to distinguish between real business activity and internal reporting, leading many to discount this revenue. Client concentration raises similar concerns: a business heavily reliant on one or two clients may appear stable, but losing one client can significantly impact its income, increasing credit risk.
Gupta also refuted the notion that SMEs outside major cities face a structural disadvantage in attracting capital. As underwriting expands to second and third-tier cities, and regional lenders emerge, he believes location is less important than the fundamental foundations of the business. 'The business must have its strengths, the business must meet the requirements, the business must grow,' he said. 'That is more important than your location.'
Enterprises in remote areas can still benefit from working with lenders specializing in those markets, but geography is no longer the main obstacle. Ultimately, Gupta asserted that raising capital, whether debt or equity, should never become a last-minute event. He advised: 'Do not leave it until later to raise debt or equity.'
Businesses that prepare in advance negotiate from a position of choice, not necessity.
