For Indian SMEs, financing should extend beyond traditional banks. While bank loans offer lower rates for standardised, well-secured needs, structured debt from private credit funds provides essential flexibility. This bespoke financing utilises non-convertible debentures and mezzanine debt, aligning repayments with actual cash flows rather than fixed monthly instalments. It offers rapid deployment and enables capital-heavy expansion or acquisitions without diluting promoter equity. For business owners prioritising growth and control, private credit is an increasingly compelling alternative to conventional funding. Lorvet Advisory Services helps businesses evaluate this trade-off, matching financial structures precisely to long-term corporate goals.
For most Indian SMEs, the financing conversation begins and ends at the bank. You need capital, you approach your relationship manager, and you accept whatever the credit committee approves, or you do not get the money. That model worked when banks were the only game in town. It is no longer the only option, and for a growing number of mid-sized companies it is not even the best one. Private credit, delivered through structured debt solutions, has become a serious alternative, and knowing when to choose it over a traditional bank loan can decide whether an opportunity is captured or missed.
A bank loan is a standardised product. Private credit is a tailored one. That single distinction explains most of what follows, and understanding it helps a business owner decide which route fits the situation in front of them.
What Structured Debt Actually Is
Structured debt is financing provided by non-bank lenders, typically Alternative Investment Funds registered with SEBI, that is shaped around a specific borrower rather than fitted to a fixed template. Instead of a standard term loan with rigid monthly instalments, the structure is built to match the company’s cash flows and growth plan.
The instruments reflect this flexibility. The most common is the non-convertible debenture, a secured debt security with a defined maturity and clear covenants. Beyond that sit mezzanine debt, which carries a higher yield and sometimes a small equity component, and cash-flow-linked instruments where repayment is tied to business performance milestones. The point is not novelty for its own sake. It is that structured debt solutions can be arranged so repayment begins when revenue stabilises, rather than the month after disbursal, which is precisely what a capital-heavy expansion often needs.
Where the Bank Loan Still Wins
It would be wrong to suggest private credit beats a bank loan in every case. For many SMEs, the bank remains the right and cheaper choice, and an honest adviser says so.
Bank lending is materially less expensive. Where a bank term loan might price in the region of eight to twelve percent, private credit typically costs more, reflecting the flexibility and speed it offers. If your company has the collateral, the track record and the clean financials a bank wants, and your need is a straightforward, well-secured loan with time to spare, the bank loan is usually the lower-cost answer. Private credit earns its premium only when the bank cannot or will not move, or when the structure itself is worth paying for.
When Private Credit Is the Better Choice
The case for structured debt becomes compelling in specific situations, and recognising them is the real skill. The clearest is speed. Private credit funds routinely close in weeks where a bank takes months, which matters when an acquisition, a large order or a time-bound opportunity will not wait for a committee.
The second is structure. A manufacturer expanding capacity, or an infrastructure firm midway through a project, may need repayment aligned to when the new revenue actually arrives, something a standardised bank EMI cannot accommodate. The third is when a stretched balance sheet or an unconventional security package makes a bank hesitant, even though the business itself is sound. Banks increasingly favour retail lending over mid-corporate exposure, and bank credit growth slowed to around eleven percent in FY25, leaving a real gap. Private credit has stepped into exactly this space, with India’s market crossing twelve billion dollars in 2025.
The Equity Angle Owners Should Not Miss
There is a strategic reason promoters are choosing structured debt that goes beyond convenience. Raising equity to fund growth means giving away ownership, and often control. Structured debt lets a company fund expansion while keeping the promoter’s stake intact.
This is why growth-stage firms that could raise an equity round are instead turning to private credit, accepting a higher cost of capital in exchange for not diluting at a point when the business is gaining value. For a founder who believes the company is worth more next year than today, paying interest is cheaper than selling shares cheaply now. Weighing that trade-off, cost of debt against cost of dilution, is central to the advisory work Lorvet does with its clients.
Reading the Fine Print
Structured debt is powerful, but it is not free of strings, and a business owner should go in with eyes open. These deals often carry covenant-heavy terms: information rights, board observation rights, operational restrictions and financial covenants that, if breached, hand the lender significant leverage.
The flexibility on repayment is real, but it is matched by tighter ongoing obligations than a simple bank loan usually imposes. The instruments are also more complex, and the implications for a future fundraise or exit need to be modelled before signing, not after. This is where independent advice pays for itself, because the headline rate is rarely the whole story.
The Practical Takeaway
The choice between a bank loan and structured debt is not about which is better in the abstract. It is about matching the instrument to the situation. Where the need is standard, secured and unhurried, the bank loan is usually cheaper and entirely sufficient. Where speed, bespoke structuring, a stretched balance sheet or the wish to avoid dilution is in play, structured debt solutions earn their premium. For an Indian SME weighing an expansion, the smartest first step is an honest assessment of which problem you are actually solving, and that clear-eyed comparison is what Lorvet Advisory Services is built to provide.
