How to Raise Unsecured Debt for a Growing Indian Business: A Practical Guide

Most growing Indian businesses hit a moment where their working capital cycle outruns their bank sanctions. Sales are up, receivables are stretched, inventory is heavier, a new plant needs pre-funding — and the bank's ₹30 Cr working capital limit that felt generous two years ago suddenly isn't enough. That's usually when unsecured debt enters the conversation.

This guide walks through how the Indian unsecured debt market actually works — the lenders, the pricing, the documents, the timelines, and the traps. Written for founders and CFOs raising it for the first time.

What "unsecured" actually means in the Indian context

An unsecured facility is one without a specific asset pledged as security. There's no mortgage on your factory, no hypothecation of your inventory, no lien on receivables. The lender is taking a view on your cash flows and your promoter — not your assets.

Two important nuances that get missed:

1. "Unsecured" isn't the same as "no security." Almost every unsecured facility in India comes with a personal guarantee from promoters, and sometimes a corporate guarantee from a holding entity. This isn't collateral in the traditional sense, but it's real skin in the game.
2. Unsecured facilities usually have negative covenants. You'll typically agree not to create fresh security on your assets without lender consent, not to take on additional debt above a threshold, and to maintain certain financial ratios. Break them and the loan becomes callable.

Who actually lends unsecured in India

The unsecured debt market in India has three broad lender pools, each with different risk appetites, pricing, and processes:

Lender type	Typical ticket	Pricing (indicative)	Speed
Banks (private & PSU)	₹5–25 Cr	10–13% p.a.	8–12 weeks
NBFCs	₹10–100 Cr	12–16% p.a.	4–6 weeks
AIF debt funds & private credit	₹25–200+ Cr	14–18% p.a.	6–10 weeks

Ranges are indicative and depend heavily on borrower profile, tenor, and market conditions. A ₹500 Cr revenue company with clean books and 3-year audited profits will price at the bottom of these ranges; a first-time borrower with volatile cash flows will price at the top or not qualify at all.

Banks lend unsecured typically as unsecured overdraft, unsecured term loans, or working capital top-ups to existing customers. They're cheapest but slowest and most conservative on ticket size.

NBFCs are the workhorse of the mid-market unsecured space. They move faster than banks, are willing to take on borrowers banks won't touch (limited profit history, sector concerns, promoter issues), and price accordingly.

AIF debt funds and private credit lenders are relatively new to the Indian market at scale but growing fast. They typically take larger ticket sizes, longer tenors (up to 5–7 years), and are willing to structure creatively — but they price the risk fully.

How lenders actually evaluate you

Every lender runs some version of the same evaluation, weighted differently:

1. Financial track record

Audited P&L and Balance Sheet for the last 3 years. They're looking for revenue growth, EBITDA margins (usually 8%+ minimum for unsecured), profit consistency, and the direction of debtors, creditors, and inventory. One bad year is survivable; a declining trend is a red flag.

2. Cash-flow quality

Bank statements for the last 12 months, ideally across all operating accounts. Lenders look at average bank balances, cheque bounces (any), turnover consistency, and the ratio of banking turnover to declared revenue. A big mismatch here kills deals.

3. Existing debt stack

Your current sanction letters, repayment track record, and DSCR. If you're already at 4x debt-to-EBITDA, adding more unsecured is going to be very hard. Lenders also check with CIBIL / CRIF for any historical defaults or delays.

4. Promoter profile

KYC, personal net-worth statements, personal CIBIL scores. Promoter guarantee is standard, so lenders want to know they're guaranteeing something. Any promoter litigation, income tax cases, or historical business failures will be scrutinised.

5. Use of funds

The story matters. "Working capital gap due to receivables stretch" is a fundable story. "General corporate purposes" is not. Lenders want to know specifically what the money is doing and how it eventually pays itself back.

The actual process, week by week

Assuming complete documentation and a reasonably clean borrower profile, here's what a typical unsecured raise looks like:

Week 1: Financial and credit assessment. If you're working with an advisor, this is the diagnostic phase — reviewing your stack, identifying the right structure, deciding which lender pool to approach. If you're going direct, this is when you prepare your own information memorandum.

Weeks 2–3: Lender approach. Deal is presented to 3–5 shortlisted lenders. Preliminary interest is confirmed, indicative term sheets exchanged. This is where you compare rates, tenors, and covenants.

Weeks 3–5: Credit approval and detailed diligence. The selected lender's credit committee runs full diligence — additional document asks, management calls, site visits (sometimes), reference checks with your bankers and vendors. Final sanction letter issued at the end.

Weeks 5–7: Documentation and legal. Loan agreement, personal guarantee, corporate guarantee (if any), covenant schedules, board resolutions. This phase almost always takes longer than expected — build in buffer.

Weeks 7–8: Disbursement. Funds hit your account.

Emergency or bridge facilities can compress this to 2–3 weeks total, but only for very clean borrower profiles and only through NBFC/private credit routes.

What to watch for in the term sheet

The rate isn't the only thing that matters. Some of the most expensive parts of an unsecured facility hide in the fine print:

• Processing fees — usually 0.5–1.5% of the facility, sometimes higher for private credit. This is upfront and non-refundable.
• Prepayment penalties — many unsecured facilities have 2–4% penalty if you refinance in the first 12–18 months. Deal-breaking if you're planning to refi soon.
• Financial covenants — Debt/EBITDA thresholds, minimum DSCR, current ratio floors. Break one and you're in default.
• Cash-flow sweep clauses — Some lenders require excess cash flow to be swept toward loan repayment, which can trap working capital.
• Additional-debt restrictions — You may need lender consent for any new borrowing, even from your existing bank. This can slow down future raises.
• Personal guarantee release — Usually there's no release. Some lenders will agree to a release trigger (e.g., after 3 years of clean servicing) — worth negotiating for.

Common mistakes we see

The biggest driver of a bad debt raise isn't the rate. It's the wrong instrument, the wrong tenor, or the wrong lender for the business.

Approaching one lender at a time. Serial single-lender processes waste months. Parallel processes give you leverage on pricing and terms.

Raising more than needed. "As long as we're going through the process, we might as well raise ₹40 Cr instead of ₹25 Cr" — sounds reasonable, adds ₹1.8 Cr/year of interest cost you didn't need.

Optimising for lowest rate over best structure. A 12% loan with a 3-year lock-in and a strict covenant package can cost you more than a 14% loan with a clean prepayment window.

Not accounting for the promoter guarantee. Personal guarantees have real implications for your net worth, your ability to raise personal debt, and family assets. Understand what you're signing.

Ignoring the covenant math. Especially for growth-stage businesses where the next 12 months' numbers may look different from the trailing 12. Model out what your covenant compliance looks like under different growth scenarios before you sign.

When unsecured is the right answer — and when it isn't

Unsecured makes sense when:

• You have strong, predictable cash flows but limited pledgeable assets
• Speed matters more than absolute cost
• You're funding working capital, growth, or bridge to a larger raise
• You have secured capacity that you want to preserve for a bigger future raise

Unsecured is usually the wrong answer when:

• You have unencumbered assets that could unlock materially cheaper secured debt
• The use of funds is a specific asset (real estate, plant & machinery) that lenders will happily secure against
• Your cash flows are lumpy or seasonal and covenant compliance would be shaky
• You're refinancing existing debt without a clear reason (the switching cost usually kills the savings)

Common questions

What's the minimum turnover to raise unsecured debt in India?

Most NBFCs and AIF debt funds have a minimum turnover threshold of ₹50 Cr, some go down to ₹25 Cr. Banks are usually more flexible on turnover but stricter on profitability. Below ₹25 Cr turnover, unsecured lending becomes very sector-specific and expensive.

Can loss-making companies raise unsecured debt?

Rarely, and only in specific circumstances — pre-IPO companies with strong backing, businesses with high-quality cash flows despite accounting losses, or turnaround stories. Most lenders want 2–3 years of profits. Loss-making companies typically raise through secured facilities against specific assets or through equity/convertible instruments.

Do I need a rating to raise unsecured debt?

Not for bank or NBFC facilities. You do need a rating for public NCD issuances and some AIF debt fund transactions. Getting a rating (from CRISIL, ICRA, CARE, India Ratings, or Brickworks) takes 4–6 weeks and costs ₹3–8 lakh depending on ticket size and rating agency.

How is unsecured debt different from an NCD?

NCDs (non-convertible debentures) are a specific instrument — debt raised through securities issuance, sometimes listed, usually with a rating requirement. Unsecured is a broader category — a facility can be unsecured without being an NCD (e.g., unsecured term loan from an NBFC). Many NCDs are unsecured, but not all. NCDs typically have longer tenors and different investor pools than plain bank/NBFC facilities.

Should I go direct to lenders or use an advisor?

For your first unsecured raise, an advisor usually pays for itself — parallel lender processes, better term sheet negotiation, faster diligence, and structuring advice. For your fifth raise, if you have direct relationships and know exactly what you want, going direct is fine. See our broker vs advisor guide for more.