Debt isn’t dangerous. Poor debt timing is.

A founder once shared this after taking a ₹50 lakh working capital loan:

Another founder used a ₹20 lakh line of credit to fund inventory cycles and scaled profitably without ever touching venture capital.

Same instrument.

Different intent.

Wildly different outcomes.

Business loans aren’t bad.

But they’re not free. And they’re certainly not strategy-proof.

Let’s break down how to use debt wisely—so that it funds your business instead of sinking it.

Step 1: Match Loan Type to Business Need

The most common mistake?

Using the wrong loan for the wrong purpose.

Here’s how to match them:

• Working Capital Loans:

  For short-term cash gaps (receivables, vendor payments)

  → Repay within 6–12 months

• Term Loans:

  For CAPEX, expansion, equipment, team growth

  → Repay over 1–3 years

• Line of Credit / Overdraft:

  For flexible, seasonal needs

  → Pay interest only on what you use

Never use short-term loans for long-term plays.

That’s how you get EMI pressure before revenue maturity.

Step 2: Calculate EMI Affordability Like a CFO

Before you take a loan, ask:

Use the 30/30/30 Rule as a thumb rule:

• No more than 30% of gross monthly margin toward EMI

• Keep 30% of EMI amount in reserves at all times

• Allow 30 extra days of cushion before first repayment kicks in

If you can’t meet those? You’re taking on hope debt, not working capital.

Step 3: Use Loans to Create Liquidity, Not Cover Leaks

Debt should fund:

✅ Inventory that’s already moving

✅ Equipment that boosts production

✅ Marketing with proven ROI

✅ Payables against locked receivables

Avoid using loans for:

❌ Salaries during slumps

❌ New experiments without traction

❌ Old debt repayments

❌ Founder withdrawals

Loan money isn’t fuel for “trying.”

It’s fuel for amplifying what’s already working.

Step 4: Plan for EMI Before the Loan Hits Your Account

Many founders get the funds and then think:

Flip that.

Smart founders:

• Map repayments into cash flow forecasts

• Automate EMI reserve creation (put 3 months EMI in a separate account)

• Communicate with vendors/employees to smooth out payment cycles

The best time to stress test a loan isn’t when things go wrong.

It’s before the first rupee is drawn.

Step 5: Track ROI on Borrowed Capital

A loan should generate more than it costs.

Simple test:

Track every rupee spent from loan proceeds—map it to revenue outcomes.

If the answer is unclear, pause.

Debt doesn’t need excuses. It needs outcomes.

TL;DR – Too Long; Didn’t Read

• Match the loan type to your use case—don’t fund long-term goals with short-term debt.

• Use the 30/30/30 rule to judge EMI affordability.

• Use debt to boost proven revenue engines—not to cover leaks or losses.

• Plan repayment before you take the loan, not after.

• Track ROI on borrowed money—if it doesn’t earn more than it costs, don’t take it.

Debt isn’t a villain.

But it demands discipline.

Because once the EMI cycle begins,

your cash flow is no longer just yours.

Use loans to build—not to bail.