In the winter of 2025, India’s startup ecosystem stands at a decisive crossroads. The country now hosts 1.64 lakh DPIIT-recognised startups, 128 unicorns, and has created close to 18 lakh direct jobs in the last decade. Yet, beneath the celebratory headlines lies a brutal truth: only 9–11 % of total startup funding comes through debt instruments. The rest is equity — expensive, dilutive, and overwhelmingly concentrated in metro-based, consumer-tech, male-founded ventures. Early-stage, deep-tech, non-metro, women-led and SC/ST-led startups are systematically locked out of meaningful credit. The result is not just skewed innovation, but an exclusivist ecosystem where only the privileged few get to play.
The Union Budget 2025–26 expanded the Credit Guarantee Scheme for Startups (CGSS) yet again — guarantee cover now up to ₹20 crore, fee slashed to 0.85 % in Champion Sectors, tenure extended to 15 years — but the needle has barely moved. As of October 2025, only 1,940 startups have availed CGSS-backed loans totalling ₹922 crore, a drop in the ocean against the ₹48,000-crore venture debt market size projected by the end of this decade. Banks and NBFCs continue to treat startups as “speculative SMEs” rather than growth engines. The missing piece is not more guarantees; it is a completely re-engineered debt model that treats startups as a distinct asset class.
The Current Debt Landscape: A Tale of Two Indias
| Parameter | Top 100 Funded Startups (2021–2025) | Rest of the Ecosystem (99 % of startups) |
|---|---|---|
| Average ticket size (debt) | ₹85–220 crore | ₹0.8–4.5 crore |
| Interest rate offered | 10–13 % | 15–24 % |
| Average time to disbursal | 28–45 days | 90–180 days |
| Women-led startups in sample | 18 % | 3 % |
| Non-metro headquarters | 11 % | 6 % |
| Deep-tech / manufacturing | 9 % | <2 % |
| Primary source | Venture debt funds & foreign banks | Local NBFCs & informal lenders |
Source: Compiled from RBI, SIDBI, Inc42, and internal lender data, 2025
The table exposes the apartheid in Indian startup credit. The top 100 startups — largely Bengaluru, Mumbai, Delhi-NCR based, and already backed by Sequoia, Accel or Tiger — have access to structured venture debt at single-digit spreads over MCLR. Everyone else is pushed into the arms of shadow lenders charging 22–36 % or forced to pledge personal property.
Why Traditional Banking Models are Failing Startups
Indian scheduled commercial banks are prisoners of three decades-old frameworks:
- Basel-III and RBI’s IRAC norms demand historical cash flows and tangible collateral.
- Risk weights for unrated exposures remain punitive (100–150 %).
- Loan officers are incentivised on NPA ratios, not portfolio yield.
The outcome is predictable: public-sector banks, which command 64 % of banking assets, have sanctioned less than ₹380 crore under CGSS in three years. Private banks are marginally better but cherry-pick only Series B+ companies with marquee VC logos.
Even the so-called “new-age” lenders — Lendingkart, NeoGrowth, Indifi — rely on GST invoices and bank-statement cash-flow models that work brilliantly for small retailers but collapse when applied to a pre-revenue biotech developing mRNA platforms or a spacetech firm burning ₹2 crore monthly on satellite prototypes.
The New Debt Model India Needs in 2025: Five Pillars of the Dynamo Framework
Pillar 1 – Startup-specific Credit Rating 2.0
A SEBI-regulated, public-private Startup Credit Rating Agency (SCRA) that scores on ten parameters:
- Revenue runway & burn multiple
- IP portfolio strength (using BHASKAR & Patent Office API)
- Unit economics trajectory
- Founder pedigree & skin-in-the-game
- ESG & geographic diversity score
- Digital moat (network effects, API calls, GitHub activity)
- Government grant / defence order pipeline
- VC pedigree vs. bootstrapped resilience
- Sector-specific Champion Sector multiplier
- Social impact quotient (women/SC-ST/minority led)
Pillar 2 – Risk-tiered Partial Credit Guarantee 2.0
Instead of blanket 75–85 % cover, introduce sliding-scale guarantees:
| Startup Rating (SCRA) | Govt Guarantee Cover | Lender Risk Retention | Max Tenure | Max Ticket |
|---|---|---|---|---|
| SCR-AAA to SCR-AA | 50 % | 50 % | 10 years | ₹50 crore |
| SCR-A to SCR-BBB | 75 % | 25 % | 12 years | ₹30 crore |
| SCR-BB and below | 90 % | 10 % | 15 years | ₹20 crore |
This aligns skin-in-the-game while dramatically de-risking deep-tech and non-metro ventures.
Pillar 3 – Debt Infrastructure Investment Trusts (Debt-IITs)
Allow mutual funds and insurance companies to launch listed Debt-IITs that pool rated startup loans into tradable securities, exactly like InvITs did for highways. Expected yield: 11–14 %, with AAA tranches at 8–9 %. This unlocks ₹1.5–2 lakh crore of domestic debt capital currently sitting idle in fixed-income funds.
Pillar 4 – Revenue-based Financing (RBF) on Steroids with GSTN & Account Aggregator
Mandate RBI to create a standardised RBF protocol where repayment is 4–9 % of monthly GST-inclusive revenue, capped at 1.6–2.2× principal. Use Account Aggregator framework for real-time revenue visibility. Early pilots by Stride Ventures and Velocity in 2024–25 have shown 60 % lower default rates than traditional loans.
Pillar 5 – Green & Impact Debt Window
₹25,000-crore dedicated window under SIDBI with 100 basis points interest subvention and 95 % guarantee for startups in climate tech, agritech, healthtech, and those with ≥35 % women on the cap table or headquartered in Tier-2/3 cities.
Early Green Shoots That Prove the Model Works
- Stride Ventures’ ₹1,200-crore Fund IV closed in September 2025 using a proto-rating framework — portfolio IRR already at 26 % with zero defaults.
- Rajasthan’s iStart programme tied up with Innoven Capital to provide blended debt (40 % state-subsidised) to 180 non-metro startups — average ticket ₹3.8 crore at 11.5 %.
- The Indian Army’s iDEX winners (77 defence startups) received ₹480 crore in concessional debt in 2025 after a fast-tracked SCRA-style rating by DRDO and SIDBI — none required personal guarantees.
The Cost of Inaction
If India continues with the current patchwork, the innovation divide will only widen:
| Scenario by 2030 | Current Trajectory (No New Model) | Dynamo Debt Model Adopted in 2025 |
|---|---|---|
| Debt as % of total startup funding | 12–14 % | 28–35 % |
| Non-metro startups funded | 11 % | 32 % |
| Women-led startups funded | 9 % | 26 % |
| Deep-tech funding share | 6 % | 19 % |
| Cumulative startup jobs | 28 lakh | 52 lakh |
| Annual startup failures due to funding gap | ~18,000 | ~6,500 |
The numbers are self-explanatory. Without a radical debt overhaul, India’s startup story will remain a tale of two nations — one that innovates exclusively for the privileged, and another that watches from the sidelines.
The 2025 Moment
The stars are aligned as never before. Liquidity is abundant (insurance and pension funds are sitting on ₹28 lakh crore of investable surplus). Technology infrastructure — UPI, Account Aggregator, ONDC, BHASKAR — is world-class. Political will is at its peak with Startup India entering its tenth year. All that is missing is the courage to declare startups a separate asset class and build the debt dynamo around it.
2025 is not just another year; it is the inflection point. India can choose to deepen the innovation divide and let thousands of potential Zepto-killers and DeepTech champions die unborn in Tier-3 colleges and small towns. Or it can ignite a truly inclusive debt revolution that turns every garage, every lab, every small-town hostel room into a launchpad.
The choice is stark: innovation inclusively, or innovation exclusively.
The debt dynamo awaits activation.
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Last Updated on Saturday, November 22, 2025 8:01 pm by Entrepreneur Guild Team
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