The debt-equity ratio tells a bank how much of your project you're funding yourself versus how much you want it to lend. It's a quick read on risk — and it shapes how much you can borrow.
The D/E ratio shows how a business is financed — how much comes from borrowing (debt) versus how much from the owner's funds (equity). A ratio of 2:1 means two rupees of borrowing for every rupee of the promoter's own money. The higher the ratio, the more leveraged — and riskier — the business looks to a lender.
'Debt' here is typically the long-term borrowing; 'equity' is the promoter's capital and reserves. Banks read it straight from the projected balance sheet in your DPR.
For most MSME term loans, lenders are generally comfortable up to around a 2:1 debt-equity ratio, with some flexibility — a stronger or lower ratio reads as a safer, better-capitalised project, while a much higher ratio invites caution or a demand for more promoter funds. As with all such norms, the exact threshold follows the bank's own credit policy and the nature of the project.
The D/E ratio is really the flip side of your margin / promoter contribution. Bringing more of your own money lowers the ratio, reduces the loan, improves DSCR, and makes the whole file easier to approve. If a bank asks you to ‘bring in more margin’, it is usually because your debt-equity looks stretched. Planning the right promoter contribution up front — and counting any eligible subsidy toward the project — is part of structuring a fundable proposal.
For most MSME term loans, banks are generally comfortable up to around 2:1, with some flexibility. A lower ratio reads as a safer, better-capitalised project.
Total debt divided by total equity (the owner's funds and reserves). Banks read it from the projected balance sheet in your DPR.
The project looks over-leveraged, and the bank may lend less or ask you to bring in more promoter contribution to bring the ratio down.
They are two sides of the same coin — bringing more of your own money lowers the debt-equity ratio, reduces the loan and improves DSCR, making the file easier to approve.
We'll plan the right promoter contribution and means of finance — counting eligible subsidies — so your debt-equity and DSCR both clear the bank's bar. The first assessment is free.
Related reading: DSCR Explained · How to Prepare a DPR for a Bank Loan · Term Loan vs Working Capital · Working Capital Loan Guide · RIPS 2024 Capital Subsidy
CA Nikhil Gupta plans your promoter contribution and means of finance so debt-equity and DSCR both hold. Free assessment, no upfront fee.
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