Specialization Project

“To Study the Equity vs. Debt Financing for SME at Goblin India”

Submitted in partial fulfillment for the award of the degree of

Master of Management Studies (MMS)

(University of Mumbai)

Submitted By

Tanisha Hussain Shaikh

MB23082

Under the Guidance of

ASST. PROF. DEEPAK NAYAK

Academic Year

2023 - 2025

SAS INSTITUTE OF MANAGEMMENT STUDIES (MMS),

Saravali, Boisar (w),

Tal. & Dist. Palghar(MH) -401 501

 DECLARATION

I hereby declare that Project Report submitted by me on the topic “To Study the Equity vs.
Debt Financing for SME at Goblin India” is a Bonafide work undertaken by me and it is
not submitted to any other University or Institution for the award of any degree diploma/
certificate or published any time before.

Signature :

Name : Tanisha Hussain Shaikh

Roll No. : MB23082
Place : Boisar

Date :
 DEEP EDUCATION SOCITY’S
SAS INSTITUTE OF MANAGEMENT STUDIES

Enrich Enhance Elevate

CERTIFICATE
This is to certify that project titled “To Study the Equity vs. Debt Financing for SME at
Goblin India” is successfully completed by TANISHA HUSSAIN SHAIKH during the IV
Semester, in partial fulfilment of the Master’s Degree in Management Studies recognized
by the University of Mumbai for the academic year 2023-25 through SAS INSTITUTE OF
MANAGEMENT STUDIES.

This project work is original and not submitted earlier for the award of any degree
/diploma or associateship of any other university / Institution.

Internal Examiner

Name: Signature:

External Examiner

Name : Signature :

DR. Bhagesh Sankhe

(Director SASIMS)

College Seal
 ACKOWLEDGEMENT

I express my sincere thanks to my project guide, “Asst. Prof. Deepak Nayak”, Assistant
Prof, of MBA Department, for guiding me right from the Inception till the successful
Completion of the project, I sincerely acknowledge his for extending his valuable
guidance, support for literature, critical reviews of project and the report and above all the
moral support HE/SHE had provided me for this project.

I would also like to thank our Director Dr. Bhagesh Sankhe Sir and other staff members of
MBA Department, for their help and cooperation throughout my
Project.
 Table of content

Chapter No. Title Page No.

Declaration 1
College Certificate 2
Acknowledgement 3
Introduction 5
A Company Profile 14
B Review of Literature 23
C Research Methodology 29
1. Research Design

2. Objective of Research
3. Scope of the Study
4. Research Approach
5. Source of Data
5.1 Secondary Data
6. Type of sampling
7. Instrument of data Collection
D Data Analysis and Interpretation 31
E Conclusion 38
F Findings 41
G Limitations 44
H Recommendation 45

I Bibliography 48
 Chapter – 1: Introduction

A small and medium-sized enterprise (SME) is a business that employs fewer than a
certain number of people, has a certain amount of assets or revenue, or meets other
criteria:

1.1 Definition

SMEs are independent firms that are not subsidiaries of other companies. The number of
employees that defines an SME varies by country, but the most common upper limit is 250
employees.

1.2 Importance

SMEs are important to the global economy, accounting for the majority of businesses
worldwide and creating most jobs in emerging markets. They also contribute significantly
to national income in emerging economies.

1.3 Challenges

SMEs face challenges in obtaining bank loans, so they often rely on internal funds or cash
from friends and family to start and run their businesses.

Government support

Governments offer incentives to help SMEs stay in business, such as favorable tax
treatment and better access to loans.

In India, an SME is defined as:

A small scale industrial (SSI) unit with a total investment in fixed assets, leased assets, or
hire-purchase assets of up to Rs10 million

A medium-scale industrial unit with a total investment of up to Rs100 million

A unit that is not a subsidiary of any other industrial unit

In Mexico, small and medium-sized companies are called PYMEs, which is a direct
translation of SMEs.

The study of equity versus debt financing for small and medium-sized enterprises (SMEs)
dives into the complex decision-making process these businesses face when determining
how to fund their operations, growth, and innovation. For SMEs, choosing between equity
and debt financing is not merely about obtaining capital; it also reflects strategic choices
about control, financial health, risk management, and long-term goals.

1.4 Equity Financing: Ownership, Flexibility, and Investor Relations

Equity financing involves raising capital by selling partial ownership stakes in the business
to investors, which can include venture capitalists, angel investors, or even public
shareholders, depending on the company’s structure and growth stage. Equity financing
provides immediate funds without creating a repayment burden, which can be particularly
valuable for SMEs that need flexibility in their cash flow to manage day-to-day operations
and unexpected costs.

However, giving up ownership comes with significant implications. Investors gain a level
of influence over the company’s strategy and decision-making, and they expect a return on
investment in the form of dividends, increased share value, or an eventual profitable exit,
such as through a merger or acquisition. For an SME, this relationship introduces not only
financial but operational expectations from investors, who may encourage rapid growth,
efficiency improvements, or market expansion efforts that align with their interests.

Furthermore, equity financing may be easier to secure than debt for early-stage or high-
risk SMEs, particularly those lacking substantial revenue histories or collateral. For
companies in innovative or technology-driven sectors, equity can offer an attractive path
as it aligns investors’ interests with those of the founders and allows the business to pursue
aggressive growth without worrying about immediate repayment.

1.4 Debt Financing: Control, Stability, and Financial Discipline

Debt financing, on the other hand, entails borrowing money from financial institutions,
private lenders, or issuing bonds, with an agreement to repay the amount borrowed plus
interest over time. The most significant advantage of debt financing is the preservation of
ownership; the SME’s founders retain full control over business decisions and strategic
direction. Debt financing also allows the business to establish a strong credit history,
which can lead to better financing terms in the future and build financial credibility in the
market.

However, debt financing introduces fixed obligations that can strain the company's cash
flow, especially if revenues are inconsistent or growth is slower than anticipated. For
SMEs with high operational costs or those in competitive markets, the need to service debt
can limit resources available for innovation, marketing, and workforce expansion.
Moreover, financial covenants, which are often part of debt agreements, can restrict an
SME's operational flexibility. These covenants may require the business to maintain
certain financial ratios or limit additional borrowing, making it challenging to pivot
quickly in response to market changes.

1.5 The Impact of Growth Stage and Market Conditions

The choice between equity and debt financing is influenced by the SME’s growth stage.
Early-stage companies, often pre-revenue or in initial development phases, may lack the
cash flow stability or collateral necessary to secure debt, making equity financing a
practical choice. As the company matures and generates steady revenue, debt financing
may become a feasible and preferable option to fund expansion while retaining ownership.

Market conditions also play a critical role. In economic downturns or volatile markets,
lenders may tighten borrowing criteria, making debt less accessible or more costly. In
contrast, equity investors might view challenging markets as opportunities to acquire
stakes in promising companies at favorable valuations. Conversely, during periods of
economic growth, debt may be readily available at favorable interest rates, making it an
appealing option for SMEs looking to scale without diluting ownership.

1.6 Risk Assessment and Financial Health

Equity and debt financing come with distinct risk profiles. Equity financing, while
reducing immediate financial pressure, exposes the business to risks associated with
investor expectations and potential conflicts over the company’s direction. Equity
investors generally have high return expectations and may exert pressure to prioritize
short-term growth over long-term stability. Conversely, debt financing concentrates
financial risk on the SME, as failure to meet repayment obligations can lead to penalties,
higher interest costs, or even insolvency. For financially stable SMEs with predictable
cash flows, debt can provide a relatively low-risk path to growth. However, for businesses
in rapidly changing or unpredictable industries, the rigidity of debt obligations may pose
significant challenges.

1.7 Tailoring Financing Strategy to Business Needs

Ultimately, the choice between equity and debt financing is not strictly binary but rather a
strategic decision tailored to the SME's unique goals, growth potential, and market
conditions. In many cases, a balanced approach involving a mix of both equity and debt
financing may provide an optimal solution, allowing the SME to maintain control, manage
risk, and ensure financial flexibility.

This in-depth study of equity versus debt financing for SMEs highlights the importance of
aligning financing strategies with business objectives. It provides a framework for SMEs
to assess how different financing structures impact their operational flexibility, growth
trajectory, and overall success in a competitive landscape. Through careful evaluation of
these options, SMEs can make informed, strategic decisions that support sustainable
development and long-term resilience.

The study of equity versus debt financing for SMEs, it is essential to explore additional
layers of considerations, tools, and strategies that inform financing decisions. These
include the role of hybrid financing, government support mechanisms, industry-specific
influences, and the emerging importance of sustainability and ESG (Environmental,
Social, and Governance) factors in funding strat.

1.8 Hybrid Financing Models: The Best of Both Worlds?

Hybrid financing blends elements of both debt and equity, offering SMEs additional
flexibility. Common forms include convertible debt, where loans can convert into equity
at a later stage, and mezzanine financing, which combines debt-like repayment
obligations with equity participation.

1.8.1 Convertible Debt:

Often used by startups and high-growth SMEs, this model allows businesses to secure
immediate capital while deferring valuation negotiations until they achieve significant
growth.
1.8.2 Mezzanine Financing:

Provides funds with lower collateral requirements than traditional debt and offers lenders a
share in future profits. While it reduces financial strain compared to pure debt, it still
incurs higher costs and partial dilution of ownership.

Hybrid models are particularly useful for businesses in transitional stages—e.g., moving
from startup to scale-up or for those seeking to minimize risks associated with a single
financing approach.

1.9 The Role of Government Programs and Support

Governments often introduce programs to support SME financing due to their critical role
in economic growth and employment. These programs may involve grants, subsidized
loans, tax incentives, or credit guarantees to encourage lending by private institutions.

Credit Guarantee Schemes: In these arrangements, the government partially or fully

guarantees SME loans, reducing lender risk and encouraging access to debt financing.

Equity Support Programs: Governments may also establish public-private venture funds
or direct equity investments to foster innovation and entrepreneurship.

Tax Benefits: Deductibility of interest on debt may make it more attractive, while
favorable tax treatment of equity gains can also incentivize investors.

Understanding the availability and terms of such programs is vital for SMEs looking to
optimize their capital structures.

1.10 Industry-Specific Considerations

The industry in which an SME operates significantly influences its financing strategy. For
instance:

Tech and Innovation Sectors: These businesses often require significant upfront capital
for R&D and product development. They lean towards equity financing due to high initial
risk and uncertain revenues.

Manufacturing and Capital-Intensive Industries: With stable cash flows and tangible
assets, these SMEs may prefer debt financing for machinery, equipment, or expansion.

Service-Based SMEs: These businesses often have fewer physical assets for collateral,
making equity or unsecured debt financing more common.
1.11 The Importance of Timing

Timing plays a pivotal role in financing decisions. During early growth stages, equity is
often the preferred route due to the absence of revenues or collateral. As an SME scales, it
becomes more viable to use debt, especially when cash flows are predictable. Similarly,
external market conditions, such as interest rate fluctuations or investor sentiment, can
heavily influence the cost and availability of financing.

For instance, in low-interest-rate environments, debt becomes more affordable,

encouraging SMEs to borrow rather than dilute ownership. Conversely, in times of
economic uncertainty, equity may offer a safer alternative due to the reduced risk of
insolvency.

1.12 Valuation and Negotiation Challenges

A critical aspect of equity financing is determining the company’s valuation, which

dictates how much ownership an SME must give up in exchange for funding. For early-
stage businesses, valuation can be subjective, relying on projections rather than historical
performance. Misaligned expectations between entrepreneurs and investors often create
challenges during negotiations.

Debt financing, while not reliant on valuation, may involve equally complex negotiations
concerning interest rates, repayment terms, and collateral requirements. SMEs must
carefully evaluate the implications of these terms to avoid restrictive covenants or
unfavorable borrowing conditions.

1.13 Emerging Trends in Sustainable Financing

Investors and lenders increasingly consider ESG (Environmental, Social, and

Governance) factors when evaluating SMEs. Sustainable financing options, such as green
bonds or sustainability-linked loans, offer funding tailored to businesses with strong ESG
commitments. SMEs adopting sustainable practices may gain access to preferential terms,
such as lower interest rates or equity at favorable valuations.

These trends highlight the growing importance of aligning business practices with societal
values, not only to attract funding but also to enhance reputation and competitiveness.

1.14 Practical Considerations for Decision-Making

When choosing between equity and debt, SMEs must weigh:

Cost of Capital: Equity is often more expensive in the long run due to shared profits,
while debt requires predictable cash flow to meet repayment obligations.
Flexibility: Debt financing imposes fixed schedules, while equity offers more freedom to
reinvest earnings into growth.

Risk Tolerance: High-growth or risk-prone SMEs may favor equity, while established
businesses may lean towards debt.

Control Preferences: Equity involves dilution of control, making it less desirable for
founders who want to maintain autonomy.

Collateral Availability: Debt financing often requires assets as security, limiting options
for service-based or asset-light companies.

1.15 Combining Equity and Debt Strategically

For many SMEs, the ideal solution lies in a balanced mix of equity and debt, leveraging
the strengths of each. For example:

Initial rounds of equity financing can fuel R&D and market entry.

Debt financing can support later-stage growth once revenue streams stabilize.

Hybrid instruments can bridge the gap, offering customized solutions tailored to the
SME’s needs.

Such a layered approach ensures financial resilience and minimizes dependence on a

single funding source.

Empowering SMEs with Knowledge

The choice between equity and debt financing for SMEs is deeply multifaceted, shaped by
internal goals, external conditions, and the interplay of risk and reward. Through thorough
analysis, strategic planning, and an understanding of available resources, SMEs can craft
financing strategies that not only meet their immediate needs but also position them for
long-term success. As the financial landscape evolves, businesses that adapt to new
opportunities such as hybrid models, government programs, and sustainable financing will
be best equipped to thrive.

1.16.SME Financing Techniques:-

When the time comes to get funding for your business, you’ll be faced with two main
types of finance: debt and outside investment (equity).With debt financing, you’ll receive
funding without giving up ownership, but you’ll need to pay the money back, no matter
what happens to your SME.
With equity investors (Private Equity, Venture Capital and High Net Worth Individuals), you
won’t need to pay back the money immediately but you will need to give away some
ownership of the company. When you take out a loan, you need to know exactly what it’s for
and how it will generate income. At the end of the day you’ve got to pay it back and the
monthly repayments can restrict your cash flow in the years to come. To discuss the various
options open to you, start by talking to your accountant.

Look at your business

If you conduct a basic review of your business, you may find that you don’t actually need
financing. Updating your payment terms, negotiating extended settlement periods with
suppliers and more aggressive debt collection practices can often result in an immediate
improvement in cash flow and avoids the need for low level borrowing.

1.16.1 Debt options

1. Invoice finance

Invoice financing involves treating your invoices like assets. A lending company advances a
percentage of the total amount on the invoice. Once your client pays, you get the rest of the
money and pay a fee to the lender.

This is a good option if most of your money is tied up in unpaid invoices and you need
immediate payment. It helps cash flow and is a relatively low-risk and stable option. It’s also
a good option for relatively new SMEs with at least some transactional history, since the
lender focuses more on the repayment behaviours of your clients and may or may not check
your credit.

2. Startup loans

One of the more popular ways to obtain funding without going to the bank, these allow you
access to money while retaining full ownership of your SME. However, it can be harder to
qualify for them and you may be asked for personal collateral to lower the risk. It is important
to ensure that the loan is allocated and utilised efficiently to generate income as monthly
repayments can restrict cash flow in the years to come. Professional advice from your
accountant is essential.

3. Revenue-based finance

Also called cash flow-based lending, this links your monthly loan repayments to the
performance of your business. You pay back a percentage that fluctuates along with your
revenue. There’s no minimal credit, you won’t have to put up any collateral and the
application is relatively quick to process. Importantly, you won’t need to cede any control to
someone else. However, only small and medium businesses from certain industries tend to
qualify and the loans range from 4 to 18 months duration.
4. Crowdfunding

This involves raising money through a third-party platform like Funding Circle and works
best for startups selling more creative products and want to test a market. It’s a great way to
get funding, raise awareness and acquire new customers, without giving away ownership of
the company. In exchange for funding, you can choose to offer early access, free products
and future discounts.

5. Government backed lending and not-for-profits

It’s worth checking out organisations like the British Business Bank, British Enterprise Fund,
Northern Powerhouse and local enterprise partnerships (LEPs) to see what finance might be
available. In addition, local councils often drive initiatives to assist SMEs/startups.

1.16.2 Equity options

1. Angel investment

Angel investors provide financing for SMEs in exchange for a share in the business. They
expect a 20-25% return on initial investment and are a good option to help fill the gap
between investments from friends and family and Venture Capitalists (VCs).

Angel investments are less risky as you don’t need to pay it back if the business fails – plus
many angels are also looking for a personal opportunity to contribute. However, they’re not
suitable if you want to retain 100% ownership and don’t want someone else influencing your
company decisions.

2.Venture capital funding

VCs are designed to provide financial support to help startups grow and often include
services such as mentoring, guidance and professional networks. Their objective is to grow
the business quickly and get a higher return on their investment. You will need to cede some
control of your business and they will become involved in company objectives and the
company’s direction.

3.Private equity

This involves selling “parts” of the business, typically to a private equity fund, but SMEs can
also raise private equity through owners and investors. Again, you will need to cede some
control to investors, but you may also get mentorship and other additional support. Specialist
advice is required to protect your position.

4.Conclusion

There is no “one solution fits all” when it comes to SME financing. The type of financing that
best suits an SME can be influenced by many factors:
 • Age, stage and size of the business
• The amount required
• The reason for borrowing
• The sector in which the business operates

Depending on your company objectives and business model, either debt or equity options
might work well for your SME but before making any decision, it is important to perform a
thorough assessment of the business as numerous factors will drive the decision on which
financing route to take. Professional guidance, usually from your chartered accountant, is a
sensible first step.

1.17 Introduction to one SME Company “ Goblin India Ltd”

Established in 2001, Goblin has built its trust and goodwill in the luggage industry by
providing its customers with the best and the latest travelling gear solutions. Over the years,
Goblin has become one of the top brands in India by providing strong and durable luggage
along with corporate promotion solutions. With its headquarters and manufacturing plant
based in the city of Ahmedabad, Gujarat, it has gained a significant foothold in the local
markets as well as across the nation. Goblin currently has over 525 dealers across India and
over 300 dealers in France. With the help of constant efforts, Goblin aims to automate and
innovate its range of products making travelling user-friendly for all its customers.

Since its inception in Ahmedabad, the urban heartland of Gujarat, Goblin has been a leading
travel lifestyle brand. Today, Goblin profoundly crafts aesthetically designed luggage
targeted to modern travel requirements. Our diversified institutional client base is built by
providing exceptional quality services and nurturing long-term relationships. We cater to
appropriately 100 direct corporate clients across numerous sectors. We specialize in corporate
gifting for brand promotions and brand reminders.

In addition to our travel manufacturing capabilities, we now offer a thoughtful selection of

items perfect for corporate gifting. These include luxurious bedsheets, high-quality
corrugated boxes, durable bed sheet lining material, soft and stylish comforters, and practical
mouse pads. We also provide a wide range of other products that is required by our corporate
clients.
Our Company was incorporated on April 26, 1989, as "Kal-Chop Export Private Limited"
under the provisions of the Companies Act, 1956 with the Registrar of Companies, Gujarat
bearing Registration Number 04-12165. We subsequently changed the name of our
Company from " Kal-Chop Export Private Limited " to "Camex Auxi- Chem Private
Limited" vide a fresh Certificate of Incorporation issued by Registrar of Companies,
Gujarat dated December 15, 1989.

Our Company obtained another fresh certificate of incorporation pursuant to change of

name from "Camex Auxi-Chem Private Limited" to "Camex Tradelink Private Limited"
dated April 18, 2002 issued by the Registrar of Companies, Gujarat and Dadra & Nagar
Haveli. Subsequently, our Company was converted into public limited company pursuant
to Shareholders Resolution passed at the Extra Ordinary General Meeting held on January
11, 2010 and the name of our Company was changed to "Camex Tradelink Limited" vide a
fresh Certificate of Incorporation dated April 8, 2010 issued by the Registrar of
Companies, Gujarat and Dadra & Nagar Haveli.

Our Company obtained another fresh certificate of incorporation pursuant to change of

name from "Camex Tradelink Limited" to"Goblin India Limited" dated August 24, 2015
issued by the Registrar of Companies, Ahmedabad.

History:

Incorporated in 1989 as Kal-Chop Export Private Limited, the company changed its name
several times before becoming Goblin India Limited.

Headquarters:

Goblin India's headquarters and manufacturing plant are located in Ahmedabad, Gujarat.

Products:

Goblin India sells a range of travel gear, including hard and soft luggage, wallets, purses,
and travel neck pillows.

Distribution:

Goblin India sells its products through wholesale, retail, e-commerce, and corporate
gifting. It has dealers and distributors across India and France, and sells on e-commerce
platforms like Amazon and Flipkart.

Corporate clients: Goblin India caters to over 150 direct corporate clients in various
industries, including pharma, FMCG, and infrastructure.

Brand:

Goblin India is known for its traveling gears and corporate gifting.

Goblin India: Equity and Debt Financing

Goblin India is a lifestyle and travel brand known for its premium-quality travel
accessories and consumer goods. Like any growing company, financing decisions play a
crucial role in its business expansion, product development, and market penetration. Let’s
dive into the details of equity financing and debt financing concerning a business like
Goblin India.

1. Equity Financing

Equity financing involves raising capital by selling ownership stakes in the company.
Companies at different stages of growth can use equity financing to fund expansion,
product development, or operations.

How Equity Financing Works for Goblin India

Private Equity or Venture Capital:

Goblin India could attract private investors or venture capital (VC) firms willing to invest
in high-potential businesses. VCs often bring more than money—they provide expertise,
market access, and guidance.
Angel Investors:

Early-stage funding could come from angel investors who provide smaller investments but
may ask for a higher equity share.

Public Offering (IPO):

If Goblin India decides to go public, it could issue shares to the public via an Initial Public
Offering (IPO). This would provide significant capital for expansion.

Benefits of Equity Financing:

i. No repayment obligation: Unlike loans, equity doesn’t require repayment, which is
ideal for a growing business like Goblin India.

ii. Increased financial flexibility: The funds can be used for various purposes like R&D,
marketing, or operations without worrying about monthly repayments.
iii. Strategic partnerships: Investors bring more than money—they bring connections and
insights that help Goblin India expand its market reach.

Drawbacks of Equity Financing:

Dilution of ownership: The founders of Goblin India may lose some control over the
company as they share ownership with investors.

High investor expectations: Equity investors expect returns, often in the form of dividends
or through an eventual exit (such as an IPO or acquisition).

Complex process: Securing equity financing can be time-consuming and requires due
diligence, negotiations, and legal documentation.

2. Debt Financing :

Debt financing involves borrowing funds from banks, financial institutions, or issuing
corporate bonds. Unlike equity financing, debt must be repaid with interest, but it does not
dilute ownership.

How Debt Financing Works for Goblin India

Bank Loans:

Goblin India might secure a loan for short-term needs like purchasing raw materials,
expanding inventory, or funding marketing campaigns.
Loans can be secured (backed by assets like inventory or property) or unsecured (based on
creditworthiness).

Corporate Bonds:

If Goblin India reaches a certain scale, it could issue corporate bonds to raise larger sums
from institutional investors, offering fixed returns over time.

Lines of Credit:

A revolving line of credit could provide flexibility to manage cash flow, especially during
peak demand periods.

Benefits of Debt Financing:

Ownership retention: Debt does not involve giving away equity, allowing Goblin India’s
founders to retain control.

Tax advantages: Interest payments on debt are tax-deductible, reducing the overall cost of
borrowing.

Predictable costs: Fixed repayment schedules help in financial planning.

Drawbacks of Debt Financing:

Repayment burden: Regular repayments can strain cash flow, especially if revenues are
inconsistent.

Interest costs: High-interest rates can make borrowing expensive.

Collateral risk: Secured loans require pledging assets as collateral, which can be risky if
the company struggles to repay.

Why Goblin India May Choose One Over the Other

The decision to use equity or debt financing depends on several factors:

Growth Stage:

1. Startup/Scaling:

Equity financing is more suitable as it provides substantial capital without immediate

repayment obligations.

2. Established Stage:

Debt financing is preferred for short-term needs or leveraging stable cash flows.

3. Revenue Stability:

If Goblin India has stable and predictable revenue, debt financing might be a viable
option.If revenues are uncertain, equity financing reduces financial risk.

Purpose of Funds:

1. Long-term Growth: Equity financing is better for strategic expansion, entering new
markets, or R&D.

2. Short-term Needs: Debt financing works well for temporary cash flow gaps or
purchasing inventory.

Risk Appetite:

High-risk ventures might opt for equity financing to avoid the pressure of debt repayment.

Low-risk operations with steady returns might lean towards debt financing for cost
efficiency.

Practical Scenario for Goblin India

Imagine Goblin India is planning to:

1.Launch a new product line of eco-friendly luggage.

2.Expand its distribution network across India and internationally.

3.Invest in digital marketing campaigns to boost brand recognition.

4.For Product Development: Equity financing might be suitable as it ensures no immediate
repayment obligation and allows focus on innovation.

5.For Marketing and Inventory: Debt financing through a working capital loan or credit
line might be ideal since these expenses yield quicker returns.

A Hybrid Approach

Many businesses adopt a hybrid financing strategy, combining equity and debt financing
to balance benefits and risks.

Goblin India could:

Raise equity for long-term growth and strategic initiatives.

Use debt to handle operational costs and short-term needs.

Financing Options in India

1. Term Loans: Banks and financial institutions offer term loans for business expansion,
equipment purchase, or working capital.

- Loan amount: ₹5 lakhs to ₹50 crores

- Interest rate: 8%-16% per annum
- Repayment tenure: 3-10 years

1. Working Capital Loans: Short-term loans to manage day-to-day operations, such as

purchasing raw materials or paying salaries.

- Loan amount: ₹1 lakh to ₹50 crores

- Interest rate: 10%-18% per annum
- Repayment tenure: 1-3 years

1. Letter of Credit (LC): A financial instrument that ensures payment to suppliers upon
presentation of compliant documents.

- Limit: ₹5 lakhs to ₹50 crores

- Interest rate: 6%-12% per annum
- Tenure: 30-360 days
1. Factoring: Selling accounts receivable to a third party to receive immediate funding.

- Limit: ₹1 lakh to ₹50 crores

- Interest rate: 10%-18% per annum
- Tenure: 30-90 days

Government Schemes in India

1. MSME Loan: The Indian government offers loans to Micro, Small, and Medium
Enterprises (MSMEs) at subsidized interest rates.

- Loan amount: ₹50,000 to ₹50 lakhs

- Interest rate: 8%-12% per annum
- Repayment tenure: 3-5 years

1. CGTMSE: The Credit Guarantee Fund Trust for Micro and Small Enterprises
(CGTMSE) provides guarantees for loans up to ₹2 crore.

- Loan amount: ₹5 lakhs to ₹2 crores

- Interest rate: 8%-12% per annum
- Repayment tenure: 3-5 years

1. Stand-Up India: A scheme providing loans to SC/ST and women entrepreneurs.

- Loan amount: ₹10 lakhs to ₹1 crore

- Interest rate: 8%-12% per annum
- Repayment tenure: 3-7 years

Online Financing Platforms in India

1. Lendingkart: Offers working capital loans and term loans to small businesses.

- Loan amount: ₹50,000 to ₹2 crores

- Interest rate: 12%-24% per annum
- Repayment tenure: 1-24 months

1. Capital Float: Provides working capital loans and term loans to small businesses.

- Loan amount: ₹50,000 to ₹5 crores

- Interest rate: 12%-24% per annum
- Repayment tenure: 1-36 months
1. OfBusiness: Offers working capital loans and term loans to small businesses.

- Loan amount: ₹50,000 to ₹5 crores

- Interest rate: 12%-24% per annum
- Repayment tenure: 1-36 months

Advantages
• Retain control. When you agree to debt financing from a lending institution, the lender
has no say in how you manage your company. You make all the decisions. The business
relationship ends once you have repaid the loan in full.
• Tax advantage. The amount you pay in interest is tax deductible, effectively reducing
your net obligation.
• Easier planning. You know well in advance exactly how much principal and interest you
will pay back each month. This makes it easier to budget and make financial plans.
Disadvantages
Debt financing has its limitations and drawbacks.

• Qualification requirements. You need a good enough credit rating to receive financing.
• Discipline. You’ll need to have the financial discipline to make repayments on time.
Exercise restraint and use good financial judgment when you use debt. A business that is
overly dependent on debt could be seen as ‘high risk’ by potential investors, and that
could limit access to equity financing at some point.
• Collateral. By agreeing to provide collateral to the lender, you could put some business
assets at potential risk. You might also be asked to personally guarantee the loan,
potentially putting your own assets at risk.
 Chapter – 2: Review of Literature

Carpenter and Petersen (2002) This paper examines the long standing theory that the
growth rate of small firms depends up on availability of internal finance. It also developed
a new test for the presence of financing constraints that makes a quantitative prediction
about the magnitude of the cash flow coefficient. The result suggests that the growth of
most of the small firms is constrained by internal finance with a small leverage effect.

Dietsh and Petey (2002) This paper proposed an internal credit risk model for SME
loans. It helps to compute value-at-risk of any large portfolio of small commercial loans
and to derive the allocation of capital and loans pricing schemes for this kind of loans.

Hall, et.al. (2004) There are variations in both SME capital structure and determinants of
capital structure in European Countries. The variations due to differences in attitude to
borrowing, disclosure requirement, relationships with banks, taxation, and other socio-
economic factors.

Berger and Udell (2006) The study offer a more complete conceptual framework for
thinking about the research and policy issues surrounding the availability of credit to
SMEs in various circumstances around the globe. It emphasize a casual chain in which
lending technologies provide the crucial link between government policies and SME credit
availability.

Quartey P (2008) The objective of this paper was to ascertain the relationship between
finance and the growth of SME in Ghana. The analysis involved formulating and
estimating two equations one on growth and second on access to finance. The result shows
that access to finance exerts a significantly positive effect on growth.

Kerr and Nanda (2009) Financing constraints are one of the biggest concerns impacting
the potential entrepreneurs around the world. The study reviews two major streams of
research examining the relevance of financing constraints for entrepreneurship. It also
provides a framework for research and policy analysis in entrepreneurial finance.

Fatoki and Odeyemi (2010) Managerial Competency, the availability of business plan,
belonging to trade associations, previous relationship, location, business size, insurance
and incorporation are significant determinants of access to trade credit by new SMEs in
South Africa.
Nawai and Shariff (2011) The paper aims to explore the importance of micro financing to
the development of micro enterprises in Malaysia. MEs play a vital role in developing

Malaysian economy. However, it faces numerous problems such as lacking marketing,

technology and credit facilities. Micro financing is a choice to the MEs as it provides easy,
faster and convenient financing facility.
Jain, et.al. (2011) Credit assessment risk for SMEs offer special challenges to
practitioners, regulators and academics. The study aims to develop default prediction
model, especially for SMEs. It examines the behavior of relevant measures of default risk
and explores the most significant variables by applying multinomial logistic regression
technique.
Mittal, et.al. (2011) The purpose of this paper is develop a non-parametric credit scoring
model for micro enterprises that are not maintaining balance sheets, and without track
record of performance. It applies comprehensive information on parameters of financial
package to micro enterprises to design a credit risk model. The development of neural
network model for micro enterprises facilitates bankers and financial institutions in credit
granting decisions.
Gumparthi, et.al. (2011) The research focuses on the design and development of credit
rating model for public sector banks in India. Different models were constructed using
weighted average method and discriminant analysis. The study concludes that the
weighted average model can be used for predicting the creditworthiness of the clients
because it has higher predictive power.

Dr. J.Venkatesh and R.LavanyaKumari (2012) The green economy is the way of the
future and our SMEs are the innovators that will bring forward the innovative products and
technologies that drive green growth. Towards this goal, SIDBI has been engaging with
several international partners and has been proactive in assimilating best practices in green
financing.

Padachi, et.al. (2012) Financing has been cited as one of the most common problems
faced by the SMEs in Mauritius and is often viewed as one of the main barrier to growth.
The financing preferences of firms were predominantly short-term and they were reluctant
to move down the pecking order for fear of losing control of their business.
Tmava,Peci et.al. (2013) There is a mutual correlation among the firm’s age, size,
business plan, sector, number of owners, sources of financing and the investment growth
financed from banks in Kosovo. The access to external sources of financing through bank
loan is an important factor that influence the investment growth.
Beck T (2013) The size of the SME segment is per se not important for economic
development, firm growth rate and entrepreneurship are. Financial deepening can help to
alleviate SMEs financing constraints and through this channel reduce poverty and create
high-quality job.

Singh and Janor (2013) The SME sector is not adopting any particular financing mix. It
depends on the need and internal factors of the enterprise to choose that finance mix which
suits best to their objectives and provides lowest cost of capital. The two factors

significantly influence the financing pattern of SMEs which includes external borrowings
and mixed financing.

Nishanth .P and Dr.Zakkariya K.A. (2014) The growth and development of MSME can
be ensured by initiating actions by government and banks for arranging the MSMEs to
avail more credit by way of reducing the barriers perceived by the entrepreneur. Owners
should also make their effort to increase their knowledge and better utilization of schemes.
The other part can be reduced by changing the attitude of the banker.

Kannan and Dr.Sudalaimuthu (2014) MSMEs form the backbone of our Economy. They
account for a large portion of our industrial output and employment. Financing to this
sector is of critical importance, particularly as it benefits the weakest sections. The
Banking Industry should enhance its share of finance to this sector through lending either
directly or indirectly in order to ensure improvements.

Singh and Singh (2014) MSMEs form the backbone for national development and are one
of the important components for the growth of national economy and for the growth of
overall industry. The present study explains that management of four key issues under
financial management is crucial for better performance of MSMEs. These includes
innovation, bank loan, government subsidies and other schemes of government for
financing MSMEs.

Chaudhary and Ahalawat (2014) Every bank has given the highest priority to financing
SMEs in their strategically growth plan because SME is fast growing sector in the Indian
economy. This sector has consistently registered a higher growth rate than the rest of the
industrial sector. In case of India, the government has taken several initiatives both at
national and international levels to improve the availability of finance to SMEs.

Abdesamed and Wahab (2014) The study aims to identify the major influences on the
decisions of small firms in applying of bank loan. Logistic regression model, namely, the
loan application is generated to explain the determinants of bank loan application of SME
in Libya. SMEs that started with bank loans, have prepare business plans, are smaller, and
under managers-owner with less education are more likely to apply for bank loans after the
startup stage.

Casey and O’Toole (2014) This study test whether bank-lending constraint SMEs are
more likely to use or apply for alternative external finance including trade credit, informal
lending, loans from other companies, market financing and grants. From the study it is
clear that credit rationed firms are more likely to use, and apply for trade credit. This
increases the firm’s size and age. But find no evidence that bank-constrained SMEs apply
for or use market finance.

Apoga R (2014) Access to finance represents one of the important challenges for
entrepreneurs. The study indicates the difficulties in SME financing for the three Baltic
states and provide government and other stakeholders with a tool to understand SMEs
financing needs. The study results highlight the importance of alternative sources of
external financing for SMEs.

Mirdamadi and Ramesha (2014) Study reveals that the flow of credit to SME sector has
improved during post MSMED Act period, supported by the fact that the growth of credit
extended to this sector is greater in quantitative terms compared to credit extended to SSI
before the enactment. Moreover the priority sector credit by public and private sector bank
is also increases in this period.

Dubal J (2015) The SME Sector in India constitutes an important part of the economy.
However, the major concern for the SMEs is the availability of an adequate amount of
finance. The government has identified the key role that SME segment plays and has
adopted several policy measures to enhance the flow of credit to this sector. The challenge
for bank is to bridge the information asymmetry so as to reduce the credit risk.

Kumar and Rao (2015) The study aims to provide a conceptual framework framework
for identifying the financing performance of SMEs by analyzing the factors affecting the
financing decisions of SMEs. It contributes to the literature by addressing the existing
financing gap for SMEs and makes an effort to diagnose the problem of access to finance
in the light of determinants of capital structure for SMEs.

Abe, et.al. (2015) Financing is a critical constraint for SMEs for several reasons. Many
SME owners do not manage working capital effectively, information asymmetry between
banks and SMEs retards the loan application and approval process. It is expected that
policy should enhance the growth and survival prospects of SMEs.
Nikaido, et.al. (2015) The study investigates enterprise level factors affecting access to
formal credit for small enterprises in India by using a probit sample selection model. The
results indicate that enterprise size, owner’s education level, registration status, diversified
activities are positively associated with the access to formal credit.

Singh and Wasdani (2016) Finance for micro, small and medium-sized enterprises has
been a concern for all stakeholders including entrepreneurs, financial institutions and
government. The study found that the main challenges faced in underutilization of formal
sources were inadequacy of collateral assets and lack of financial awareness of
entrepreneurs.

Kumar and Rao (2016) The study provides a comprehensive view on the financing state
of SMEs in India during the period of 2006-2013. The major findings revealed the

dependence of SMEs on short-term debt, and the most frequently used sources of finance
are bank loan and trade credit. The study concludes that the financing condition of SMEs
in India needs to be improved to solve the problem of SME financing.

Klonowski D (2016) The study focuses on the financial challenge faced by the
entrepreneurial firm in Poland. It explains that there are still pronounced liquidity gaps for
firms in SME sector in Poland. It offers a three policy recommendations in relation to
closing liquidity gaps in the SME sector which includes research and informal discussion,
combined package of capital and know-how and increasing the role of assisting agencies.

Khan S (2017) SMEs are critical to nation’s development. They are the second largest
employers of manpower, after agriculture. SMEs in India are operate mostly in
unorganized sector and are the source of livelihood for millions of people. Despite their
economic significance, SMEs face a number of problems that prevents them from
achieving their full potential. One of the major problems faced by the SMEs is inadequate
finance. The study concludes that the innovation is the key to success and therefore the
bank should provide innovative credit facilities for growth of SMEs.

Rao, et.al. (2017) Financing gap is the outcome of constraints faced by SMEs. It is largely
comprises of demand, knowledge, supply, etc. thus, for reducing the financial gap SMEs
should improve the quality of information required by lenders and try to make system
more transparent. SME owner should work on their financial management skill.
Kersten, et.al. (2017) Many people in Low and Middle-Income countries work for SMEs.
These SMEs have limited access to finance, therefore to promote financial assistance to
SMEs is an integral part of development strategy of any government. The study yields
three results which includes evaluation of SME finance programme, effect of SME finance
on different aspects.

Ndiaye, et.al. (2018) Applying the general to specific modelling on world bank enterprise
survey data for 266 economies this paper models five performance indicators based on 80
potential factors derived from the firms characteristics, finance, informality, infrastructure,
innovation, technology, regulation, taxes, trade and workforce concerning SMEs.
 Chapter – 3: Research Methodology

3.1. Research Design

This study adopts a descriptive research design to analyze and compare the
effectiveness of equity and debt financing for SMEs, with a specific focus on Goblin
India. The design aims to gather both quantitative and qualitative data to understand
financing preferences, challenges, and impacts.
3.2. Objectives of the Study
• To evaluate the advantages and disadvantages of equity and debt financing for SMEs.
• To assess the financial performance and growth of Goblin India under different
financing strategies.
• To identify the challenges faced by Goblin India in accessing equity and debt financing.
3.3. Research Approach
The study uses a mixed-method approach, combining both quantitative and qualitative
techniques:
• Quantitative Analysis:

Financial statements of Goblin India are analyzed to study the effects of equity and debt
financing on profitability, liquidity, and growth.
• Qualitative Analysis:

In-depth interviews with company stakeholders and industry experts provide insights
into the financing challenges and decision-making processes.
3.4. Data Collection
• Secondary Data:
Information is gathered from:
o Goblin India's financial reports, balance sheets, and income statements.
o Industry reports, journals, and government publications on SME financing.
3.5. Sampling Technique
A purposive sampling technique is used to select respondents with direct involvement
in financial decisions at Goblin India. Approximately 10-15 participants will be chosen,
including financial managers, directors, and external financial consultants.
 3.6. Tools and Techniques
• Financial Ratio Analysis:

Used to compare the impact of equity vs. debt on financial metrics like return on equity,
debt-to-equity ratio, and profitability margins.
• SWOT Analysis:

To evaluate the strengths, weaknesses, opportunities, and threats of equity and debt
financing for Goblin India.
• Thematic Analysis:

Applied to interview data to identify recurring themes and patterns related to financing
decisions.
3.7. Scope of the Study
The research is limited to Goblin India and its operations in India. While it provides
insights into SME financing, findings may not fully apply to companies outside the SME
sector or those in different geographic regions.
3.8. Limitations of the Study
• The study focuses on a single SME (Goblin India), which may limit the generalizability
of results.
• Availability and accuracy of financial data may influence the conclusions.
• Time constraints may limit the depth of interviews and analysis.
 Chapter – 4: Data Analysis and Interpretation

4.1. Financial Analysis

4.1.1 Debt-to-Equity Ratio (D/E)
• Analysis:

The D/E ratio of Goblin India is calculated for the past 3-5 years to assess its financial
leverage. A high ratio may indicate higher reliance on debt, while a lower ratio reflects a
preference for equity financing.
Example: "In FY 2022, the D/E ratio was 1.5:1, suggesting significant dependence on
debt for capital structure."
• Interpretation:

A moderately high D/E ratio may enhance returns on equity but increases the risk of
insolvency during downturns. For Goblin India, maintaining an optimal ratio is crucial
for balancing growth and stability.
4.1.2 Profitability Metrics
• Metrics like Return on Equity (ROE), Net Profit Margin, and Interest Coverage Ratio
are analyzed:
o ROE assesses how effectively equity is utilized to generate returns.
o Interest Coverage Ratio evaluates the firm’s ability to meet interest obligations, critical
for debt sustainability.
• Interpretation:

For Goblin India, higher ROE may indicate effective equity utilization, while low
interest coverage suggests challenges in managing debt financing.
4.1.3 Cost of Financing
• Comparison of the cost of debt (interest rate) vs. cost of equity (dilution and opportunity
costs).
Example: "Debt financing cost averaged 10% annually, while equity financing led to a
15% dilution in ownership."
• Interpretation:

Goblin India may find debt cheaper but riskier in the long term due to repayment
obligations and market volatility.
 4.2. Survey Data Analysis
4.2.1 Stakeholder Preferences
• Analysis:

Surveys among Goblin India stakeholders reveal preferences for financing options:
"60% prefer debt for its fixed costs and tax benefits, while 40% opt for equity to
avoid repayment stress."
• Interpretation:

Debt financing is preferred for short-term projects, while equity is suitable for long-term
expansion with uncertain returns.
4.2.2 Challenges Identified
Key challenges include:
• Difficulty in securing loans due to insufficient collateral.
• Dilution of control as a major concern for equity financing.
Example: "72% of respondents cited control dilution as a deterrent for seeking equity
financing."
• Interpretation:

Goblin India must balance control retention with access to funds for growth. Strategies
to secure low-interest loans or alternative financing mechanisms can mitigate challenges.

4.3. Qualitative Analysis (Interviews)

4.3.1 Key Insights from Management
• Themes Identified:
"Debt financing was preferred in 2019 for working capital needs due to tax shields."
"Equity financing in 2021 facilitated expansion without repayment stress but reduced
management autonomy."
• Interpretation:

Management values the flexibility of equity financing but relies on debt for predictable
short-term requirements.
 4.3.2 SWOT Analysis of Financing Choices

Aspect Debt Financing Equity Financing

Strengths Tax benefits, predictable No repayment

costs obligations, scalability
Weaknesses Repayment risk, restrictive Dilution of control,
covenants higher cost
Opportunities Access to low-interest Attracting strategic
government loans investors

Threats Economic downturns Investor interference

affecting repayment in decisions

Interpretation: Goblin India can leverage government loan schemes and attract strategic
equity partners to maximize its financing potential.
4.4. Comparative Analysis of Debt vs Equity
4.4.1 Impact on Financial Health

Parameter Debt Financing Equity Financing

Liquidity May strain liquidity due Maintains liquidity
to repayments
Growth Potential Limited by repayment High growth potential
obligations
Risk High due to fixed Lower due to shared risk
obligations

Interpretation:
Debt financing suits stable operations, while equity is ideal for growth phases.
4.5. Interpretation of Key Findings
• Debt financing has provided Goblin India with tax benefits but has strained its liquidity
during economic slowdowns.
• Equity financing enabled long-term expansion but led to ownership dilution, impacting
decision-making.
• A hybrid approach, blending debt for operational needs and equity for growth initiatives,
appears optimal for Goblin India.
 Financial Preferences

Percentage %

35%
40%

25%

Other Challenges Control Dilution

Aspect Percentage %
Debt Financing 60%
Equity Financing 40%

Interpretation

This pie chart shows that 60% of stakeholders prefer debt financing, while 40% opt for
equity financing. The preference for debt is driven by its tax advantages and predictable
repayment schedule. However, equity financing is chosen by those who prioritize avoiding
repayment risks, especially during volatile periods. Debt is the dominant choice due to its
cost-effectiveness, but the significant 40% choosing equity indicates concerns about debt
repayment risks.
 Financial Challenges

Control Dilution
35%
Collatereal Issues
40%

Other Challenges
25%

Aspect Percentage %
Collatereal Issues 40%

Other Challenges 25%

Control Dilution 35%

Interpretation

The second pie chart highlights the challenges faced by Goblin India in accessing
financing:

40% cite collateral issues as the main barrier for securing loans.
35% worry about control dilution, which discourages equity financing.
25% face other challenges, such as high interest rates or investor interference.

Collateral is a significant barrier for debt financing, while loss of autonomy is a key
deterrent for equity financing. Addressing these concerns is essential for smoother capital
acquisition.
 Comparison of Financing Cost Over year
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2019 2020 2021 2022 2023

Cost of Debt (%) Cost of Equity (%)

Year Cost of Debt (%) Cost of Equity (%)

2019 10% 15%

2020 11% 14%
2021 9% 16%
2022 10% 15%
2023 12% 17%

Cost of Debt: Fluctuates within a small range (9-12%) due to market conditions and loan
terms.

Cost of Equity: Shows a steady increase, reflecting either higher expectations from
investors or increased business valuation over time.

Interpretation

Compares the cost of debt (interest rates) and equity (ownership dilution) from 2019 to
2023. Debt costs are stable but fluctuate slightly, while equity costs show consistent
increases.
The bar diagram compares the cost of debt financing (interest rates) and the cost of
equity financing (ownership dilution) over five years (2019–2023):
Debt costs remained stable between 9–12%, with slight fluctuations due to market
conditions.
Equity dilution increased steadily from 15% in 2019 to 17% in 2023, reflecting growing
investor expectations or a higher risk premium for equity.

While debt is a cheaper option in the short term, its fixed repayment obligations make it
risky during economic downturns. Conversely, equity financing has a higher upfront cost
but offers more flexibility and scalability for long-term growth.
 Chapter – 5: Conclusion

5.1. Implications for SMEs Like Goblin India

The research highlights that SMEs face unique challenges in their financing decisions
due to limited access to traditional funding sources, high cost of capital, and risks
associated with each financing method. For Goblin India, navigating these challenges
requires a strategic and flexible approach that aligns financing choices with both short-
term operational needs and long-term growth objectives.
• Debt Financing:

Although debt financing offers tax advantages and preserves ownership, the repayment
burden can adversely affect cash flow during downturns. For SMEs, this option is most
suitable for stable projects with predictable returns. However, access to debt financing is
often constrained by collateral requirements, limiting its feasibility.
• Equity Financing:

Equity funding, while less risky in terms of repayment, is costly due to ownership
dilution. For Goblin India, this option has provided much-needed capital for expansion,
but the potential interference from investors in decision-making has been a deterrent.
5.2. Balancing Risk and Growth
The study underscores the need for SMEs to balance the risks associated with financing
methods against their growth ambitions:
• Risk Management:

Debt financing poses risks during periods of fluctuating revenue, and thus Goblin India
must implement robust risk management practices, such as maintaining a healthy
interest coverage ratio and exploring government-backed SME loan programs.
• Growth Enablement:

Equity financing, while expensive, provides a viable pathway for long-term growth by
allowing the company to invest in new projects without worrying about immediate
repayment.
5.3. Importance of Financial Metrics
A detailed analysis of financial metrics such as the debt-to-equity ratio, return on equity,
and interest coverage ratio reveals that neither equity nor debt alone is ideal. Instead, an
optimal capital structure requires a judicious mix of both, taking into account:
• The company’s stage of growth.
• Market conditions.
• The cost of each financing option.
5.4. Recommendations for Future Financing Strategies
1. Strengthen Creditworthiness:

Goblin India should improve its financial health and credit score by efficiently managing
cash flows and maintaining low leverage. This will enable access to more favorable loan
terms in the future.
2. Leverage Hybrid Financing:

By blending debt for operational needs and equity for strategic growth, Goblin India can
achieve financial flexibility while minimizing costs and risks.
3. Explore Alternative Financing:

Non-traditional funding options such as venture capital, crowdfunding, or mezzanine

financing can complement traditional equity and debt options, providing more tailored
solutions to the company’s needs.
4. Educate Stakeholders:

Providing financial literacy training to key stakeholders can help improve decision-
making and foster greater alignment on financing strategies.
5.5. Sector-Wide Insights
The findings from Goblin India's case are indicative of broader trends in the SME sector,
where access to affordable and flexible financing remains a significant barrier to growth.
Policymakers and financial institutions need to design more inclusive and accessible
financing programs tailored to the unique requirements of SMEs.
For SMEs like Goblin India, financing decisions significantly impact their ability to
survive and thrive in competitive markets. While debt provides a quicker and often
cheaper source of capital, it introduces financial rigidity. On the other hand, equity fosters
resilience and scalability at the cost of ownership dilution. Ultimately, the key lies in
adopting a hybrid approach that leverages the strengths of both, supported by proactive
financial planning, market insights, and stakeholder alignment. This comprehensive
approach will empower Goblin India to achieve sustained growth while maintaining
financial stability.
Equity financing and debt financing each offer unique advantages and challenges, making
them suitable for different business scenarios. Understanding the fundamental
differences between these financing options is crucial for entrepreneurs and business
leaders aiming to fuel their company’s growth while managing risks effectively.
Ultimately, the choice between equity and debt financing will depend on individual
business circumstances, including growth ambitions, financial health, and risk tolerance.
By weighing these factors carefully, business owners can make informed decisions that
align with their strategic objectives and position their companies for long-term success.
Whether you choose equity or debt financing, remember that securing the right type of
funding can set the stage for your business’s growth and sustainability in an ever-evolving
market landscape.
 Chapter – 6: Findings

6.1 Preference for Debt Financing:

A significant portion of stakeholders (60%) prefer debt financing for its predictable
costs, tax benefits, and retention of ownership. However, debt financing comes with
repayment obligations, which may strain liquidity during economic downturns or
periods of low revenue.

6.2 Challenges in Financing:

Debt financing is hindered by collateral requirements, which are challenging for SMEs
like Goblin India to fulfill.
Equity financing, while attractive for long-term scalability, is less preferred due to
control dilution and potential investor interference in decision-making.
6.3 Impact on Financial Health:
Debt financing has been cost-effective, with average interest rates ranging from 9% to
12%. However, it increases financial risk, particularly in unstable market conditions.
Equity financing, though more expensive (15-17% dilution), has provided flexibility
and long-term growth opportunities by eliminating repayment obligations.

6.4 Hybrid Financing Approach:

A combination of debt for operational needs and equity for long-term expansion emerges
as the most suitable strategy for SMEs like Goblin India. This approach balances the
cost-effectiveness of debt with the scalability of equity.

Key Takeaways
• Start-up small businesses may use equity financing or debt financing to obtain money
when they are cash-poor.
• A bank loan is a form of debt financing used by small business owners.
• Equity financing means allowing stakeholders to own part of the business.
• Getting a small business up and running often calls for taking out some form of debt.
• Some business owners use personal funds or take out debt in the early stages of
forming their business.
 6.5 Debt Financing

Purchasing a home, buying a car, or using a credit card are all forms of debt financing.
You are taking a loan from a person or business and pledging to pay it back with interest.
Debt financing for your business works similarly.
As a business owner, you can apply for a business loan from a bank or receive a personal
loan from friends, family, or other lenders, all of which you must pay back. Even if family
members lend you money for your business, they must charge the minimum Internal
Revenue Service (IRS) interest rate to avoid the gift tax.1
The advantages of debt financing are numerous. First, the lender has no control over your
business. Once you pay the loan back, your relationship with the financier ends. Next, the
interest you pay is tax-deductible.2
Internal Revenue Service. "Topic No. 505 Interest Expense."
Finally, it is easy to forecast expenses because loan payments do not fluctuate.
The downside to debt financing is authentic to anybody who has debt. Debt is a bet on
your future ability to pay back the loan. What if your company hits hard times or the
economy, once again, experiences a meltdown?
What if your business does not grow as fast or as well as you expected? Debt is an
expense, and you have to pay expenses regularly. This could put a damper on your
company's ability to grow.
Finally, although you may be a limited liability company (LLC) or other business entity
that provides some separation between the company and personal funds, the lender may
still require you to guarantee the loan with your family's financial assets.

6.6 Equity Financing

The main difference between equity financing and debt financing is that equity financing
involves investors. You could offer shares of your company to family, friends, and other
small investors, but equity financing often involves venture capitalists or angel investors.
The popular ABC series Shark Tank highlights entrepreneurs who present their business
ideas to a group of investors in an attempt to secure equity financing.
The significant advantage of equity financing is that the investor takes all of the risks. If
your company fails, you do not have to pay the money back. You will also have more cash
available because there are no loan payments. Finally, investors take a long-term view and
understand that growing a business takes time.
The downside is large. To gain the funding, you will have to give the investor
a percentage of your company. You will have to share your profits and consult with your
new partners any time you make decisions affecting the company. The only way to
remove investors is to buy them out, but that will likely be more expensive than the
money they initially gave you.

6.7 Which Funding Method Should Choose?

Traditional equity financing is challenging to secure, especially for small, early-stage
startups. Often you will not have a choice. Venture capitalists are usually looking for
companies with a global reach. Angel investors, those who fund on a smaller scale, are
often looking to invest a few hundred thousand dollars in new startups, but if you search
for them, there are angel investors who also invest less.
If your company is a startup serving a local market and does not need large-scale funding,
debt financing is probably your best, and perhaps only, option. More prominent startups
often combine debt and equity financing to reduce the downside of both types.
 Chapter - 8 : Limitation

1. Limited Scope of Generalization:

• The study focuses only on Goblin India, so the findings may not be applicable to all
SMEs or businesses in different industries or regions.
2. Data Availability and Accuracy:
• Access to detailed financial data from Goblin India may be restricted due to
confidentiality, leading to a reliance on secondary or estimated data.
3. Time Constraints:
• The duration of the study may not be long enough to assess the long-term impact of
financing decisions on business performance.
4. Changing Economic Conditions:
• Market conditions, interest rates, and government policies can change rapidly,
affecting the relevance and accuracy of the findings.
5. Management Bias:
• Inputs or interviews from company management may carry personal or organizational
bias, affecting the objectivity of qualitative data.
6. Lack of Comparability:
• Goblin India’s financial structure and growth strategy may differ significantly from
other SMEs, making comparison difficult.
7. External Factors Not Accounted For:
• Factors like investor sentiment, market competition, or regulatory shifts are beyond the
control of the study but may influence financing decisions.
 Chapter –9: Recommendation

1. Strengthen Creditworthiness:

Goblin India should improve its financial health and credit score by efficiently managing
cash flows and maintaining low leverage. This will enable access to more favorable loan
terms in the future.
2. Leverage Hybrid Financing:

By blending debt for operational needs and equity for strategic growth, Goblin India can
achieve financial flexibility while minimizing costs and risks.
3. Explore Alternative Financing:

Non-traditional funding options such as venture capital, crowdfunding, or mezzanine

financing can complement traditional equity and debt options, providing more tailored
solutions to the company’s needs.
4. Educate Stakeholders:

Providing financial literacy training to key stakeholders can help improve decision-
making and foster greater alignment on financing strategies.
Sector-Wide Insights
The findings from Goblin India's case are indicative of broader trends in the SME sector,
where access to affordable and flexible financing remains a significant barrier to growth.
Policymakers and financial institutions need to design more inclusive and accessible
financing programs tailored to the unique requirements of SMEs.

Optimize Debt Financing:

Goblin India should leverage low-interest loan schemes, such as those offered by the
government or financial institutions targeting SMEs, to reduce borrowing costs and
enhance liquidity.

Attract Strategic Equity Partners:

Instead of diluting control through traditional equity financing, the company can target
strategic investors who bring value beyond capital, such as market expertise or networks.

Strengthen Financial Planning:

By focusing on cash flow management, Goblin India can ensure timely repayment of debts
and maintain a healthy debt-to-equity ratio to minimize risks.
Focus on Capacity Building:
To reduce reliance on external financing, the company should explore ways to reinvest
retained earnings and optimize internal resource allocation.

Choosing debt vs. equity financing depends on several factors, such as the age and size of
your company, industry, expectation of profit, and relationship with your financial
institution. Your financing should be balanced with your exit strategy, taking into
consideration how much control you are able and willing to give up in exchange for
capital.
Most companies find it beneficial to use a mixture of debt and equity financing. The age,
size, condition, and goals of your business are factors in determining the best balance. As
your company grows and circumstances change, you will probably want to reevaluate and
adjust the mix.
Here are some options to consider at various stages of your business:
• A bank or SBA loan can make it easy to forecast expenses and build your credit,
though at the startup stage it may be difficult to obtain. Having a positive relationship
with your banker is essential.
• A partnership can bring in the upfront cash and possibly the additional expertise you
need to grow, but it can be a risk if your partner does not fully understand and agree
with your objectives.
• Cash flow financing and short-term loans are risky and should be undertaken with
great caution. However, they can be a last-resort option for businesses with no other
viable solutions.
• A venture capitalist or angel investor may be a good option if your exit strategy is to
eventually sell your company, and is a good solution for growing your business to the
point of an eventual sale you are willing to give up some control.
• Crowdfunding and crowd investing can bring in quick cash in the startup phase or
when you begin a new venture, but your idea and presentation must be strong and
unique enough to attract a lot of public interest.
• Sale of stock can be a good way to bring in capital, especially if your business is
established and profitable. However, you must be prepared to deal with the ups and
downs of the market.
In summary, there are many ways to finance a business through debt and equity financing.
Each has its advantages and its risks. Keeping a healthy balance of debt and equity
financing will help your company reach its full potential.
Ultimately, your goals and strategy drive your desired debt-to-equity mix. Whether you
choose debt or equity to finance your business, the challenge of deliberately and
effectively running your business according to a strategic financial plan is real and
essential.
If you would like assistance in determining the best mix of debt and equity financing for
your business, preparing a forecast and presentation to pitch investors and creditors, or
developing and measuring against a financial plan, Preferred CFO will be happy to help.
 Chapter-10: Bibliography

- https://www.york.ac.uk/enterprise-works/business-advice/financing-options/

- https://www.screener.in/company/542850/consolidated/
- https://www.statista.com/
- https://www.investopedia.com/financial-edge/1112/small-business-financing-debt-or -
equity.aspx

- https://ignition.law/debt-vs-equity-finance/