AS | Ankit Sarawagi|Founder, CFOmatrix·June 2026·12 min read | Updated Jun 2026 |
- The interest rate is not the whole cost: warrants, fees and covenants all add up. Always compare the all-in cost, not the headline rate.
- Warrants are the real dilution: about 0.1 percent to 2 percent of fully diluted equity, often quoted as 5 percent to 20 percent warrant coverage of the loan.
- A moratorium of 3 to 6 months (sometimes longer) protects your runway right after drawdown and is one of the most valuable terms to negotiate.
- Covenants can trigger a default even when you pay on time: a minimum cash balance, reporting and borrowing limits are as important as the rate.
- Negotiate the moratorium, warrant coverage, covenant cushions and fees, in that order. India terms vary, so verify current rates and limits and model your own numbers.
| 13-18% Typical India venture debt interest rate per year (verify current) | 0.1-2% Warrant dilution on a fully diluted basis (5-20% coverage) | 3-6 mo Common moratorium / interest-only period before EMIs begin |
To keep the numbers concrete we will follow one deal: Brewly, a D2C coffee brand that just closed a Series A and is taking a ₹10 crore venture debt facility alongside it. We will read Brewly’s term sheet line by line and show what each clause costs in rupees and in control.
The Venture Debt Term Sheet at a Glance
A venture debt term sheet has roughly ten moving parts, and they split into two groups: terms that set your cost (rate, fees, warrants) and terms that set your control (security, covenants, MFN, information rights). Read both. Founders fixate on the interest rate and sign away far more in warrants and covenants.
Here is the full map of terms, what each one means, and a sense of typical India ranges. Each row is unpacked in the sections below. Treat the ranges as guidance only and verify current numbers, this is not financial advice.
| Term | What it means | Typical India range |
|---|---|---|
| Interest rate | Annual cost of the borrowed money | ~13% to 18% p.a. |
| Tenure | How long you have to repay | 12 to 36 months |
| Moratorium | Interest-only or no-payment period upfront | 3 to 6 months (sometimes 6 to 12) |
| Warrants | Lender’s right to buy shares later (equity kicker) | 0.1% to 2% FD / 5% to 20% coverage |
| Processing fee | Upfront fee, often netted from drawdown | ~1% to 2% |
| End-of-term fee | Back-loaded fee paid at maturity | Sometimes 1% to 3% |
| Security / charge | Lien over company assets or IP | Charge over assets / IP |
| Covenants | Rules you must follow (cash, reporting, debt limits) | Deal-specific |
| MFN clause | Lender can match better terms you give others | Where applicable |
| Information rights | Reports and updates you must share | Monthly / quarterly MIS |
Ask every lender for the all-in cost of capital: interest plus processing fee plus end-of-term fee plus the modelled value of warrants, expressed as one annualised number. A 14% headline rate with a fat warrant and a 2% end-of-term fee can cost more than a 16% rate with neither.
Interest Rate and Tenure
The interest rate is the annual cost of the borrowed money, and in India venture debt it typically runs about 13 percent to 18 percent per year, higher than a bank term loan because the borrower is a loss-making, equity-backed startup. Global venture debt is lower, around 8 percent to 15 percent and often benchmark or SOFR-linked. Tenure is how long you have to repay, usually 12 to 36 months.
What to negotiate here is narrower than founders expect. The rate is largely set by the lender’s cost of funds and your risk profile, so big rate cuts are rare. More useful levers are a fixed versus floating rate (fixed protects you if benchmarks rise), a longer tenure to lower each EMI, and the absence of a steep prepayment penalty so you can refinance if your next round lets you.
Brewly borrows ₹10 crore at 14% over 30 months. Total interest works out to roughly ₹1.8 crore to ₹2 crore over the life of the loan, depending on the repayment schedule and moratorium. Compare that to selling the equity you would otherwise sell: it is usually far cheaper, which is the whole point of venture debt.
Moratorium / Interest-Only Period
A moratorium, also called an interest-only period, is the early phase of the loan where you either pay only interest or make no payments at all, before full principal-plus-interest EMIs begin. In India it is commonly 3 to 6 months, sometimes 6 to 12. It exists because the cash you just drew is meant to fund growth, not to flow straight back out as repayment.
This is one of the highest-value terms to push on, because it directly protects runway. A longer moratorium, or an interest-only structure for more of the tenure, leaves more cash working in the business during the months that are supposed to lift your next-round valuation.
For Brewly, moving the moratorium from 3 to 6 months keeps roughly ₹75 lakh to ₹1 crore of principal repayment off the cash flow in the critical first half-year after Series A. That extra cash buys milestones, which is exactly the trade venture debt is supposed to make.
Warrants and the Equity Kicker
Warrants are the equity kicker: the lender’s right to buy a small number of your shares later at a fixed price, usually your last round price. They are how a debt provider shares in your upside and they are the main source of dilution in a venture debt deal. They are quoted two ways in India, and confusing the two is a common mistake.
The two ways warrants are quoted
- As a percentage of fully diluted (FD) equity: typically 0.1 percent to 2 percent. This is the direct dilution figure, the slice of the cap table the lender can end up owning.
- As warrant coverage: typically 5 percent to 20 percent of the loan value. This is the value of shares the lender can buy. Borrow ₹10 crore with 10 percent coverage and the lender can buy ₹1 crore of shares at your last round price.
The link between the two is your valuation. The same ₹1 crore of coverage is a tiny FD percentage for a large company and a meaningful one for a small one. Always convert coverage into an FD percentage before you sign, so you know the real dilution.
Brewly’s ₹10 crore facility carries 10 percent warrant coverage, so the lender can buy ₹1 crore of shares at the Series A price. If Brewly’s post-money is ₹120 crore, that is well under 1 percent FD dilution, far cheaper than raising the same cash as equity. The levers to negotiate: lower coverage, a higher strike price, and a cap on the lender’s gain.
If the warrant strike price is set at a discount to your last round, or the warrant has a long life with anti-dilution protection, the real cost can be much higher than the headline coverage suggests. Read the strike price, the expiry and any ratchet, not just the coverage percentage. Warrants to a foreign lender also attract FEMA pricing rules, so check the structure.
Processing and End-of-Term Fees
Fees are the quiet cost. A processing or upfront fee of about 1 percent to 2 percent is charged when you draw the loan and is often netted from the drawdown, so on a ₹10 crore facility you may receive ₹9.8 crore but owe interest on the full ₹10 crore. Some deals also carry a back-loaded end-of-term fee paid at maturity, sometimes 1 percent to 3 percent of the principal.
These fees raise your effective cost without touching the headline rate, which is exactly why they are easy to overlook. Negotiate the processing fee down where you can, ask for it to be charged on the drawn amount rather than the sanctioned limit, and push back on an end-of-term fee that simply stacks on top of warrants.
Three costs, not one: rate (paid monthly), fees (paid at the start and the end), warrants (paid in equity at exit). Add all three before you compare lenders. A low rate can hide an expensive deal.
Security, Charge and Covenants
Security is what the lender can claim if you default: in venture debt it is usually a charge or lien over company assets or IP, not personal guarantees from founders. Covenants are the rules you agree to follow while the loan is live, and breaching one can trigger a default even if you are paying on time. That makes covenants as important as the interest rate.
Covenants you will commonly see in India
- Minimum cash balance: you must keep at least a set amount of cash in the bank. The most common covenant, and the easiest to breach during a slow fundraise.
- Reporting / MIS: regular financial statements and management information by agreed dates.
- Limits on further borrowing: you cannot take on additional debt above a threshold without consent.
- Restrictions on major decisions: consent needed for large asset sales, change of control, or big related-party transactions.
- Information rights: covered in the next section, often grouped with covenants.
A minimum cash covenant set too high can put you in technical default exactly when you are low on cash, which is the worst possible moment. Negotiate a realistic floor, a cure period to fix a breach, and a notice-and-cure process before any acceleration. Also check what counts as a material adverse change, because a vague MAC clause hands the lender wide discretion.
MFN and Information Rights
An MFN, or most favoured nation, clause lets the lender match the best terms you grant to any other lender. If you later raise debt on cheaper or more lender-friendly terms, the MFN holder can claim the same. It is more common with multiple or syndicated lenders. Scope it narrowly, for example to economic terms only, so it does not block your future financing.
Information rights require you to share regular financial information: monthly or quarterly MIS, audited statements, board updates, and notice of major events such as a new round or a key departure. They are reasonable, but an undefined version becomes a reporting burden. Agree the exact reports and timelines upfront, and keep them aligned with what you already produce for your board.
| Scope the MFN to economics only |
Limit any MFN to pricing and fees, not to every clause, so a future lender’s standard covenant does not get pulled back into your existing facility and complicate the next deal.
| Fix the report list and timelines |
List the exact reports (monthly MIS, quarterly financials, annual audited accounts) and the days they are due. Tie them to your existing board pack so information rights do not create new work.
| Cap consent rights and cure periods |
Make sure consent rights do not extend to routine operations, and that every covenant has a clear notice-and-cure window before the lender can call a default.
“Founders negotiate the interest rate for a week and sign the covenants in an afternoon. It should be the other way round. The rate sets your cost; the covenants and warrants set your control and your dilution.”
Ankit Sarawagi, CFOmatrixFrequently Asked Questions
What are warrants in venture debt?
Warrants are the equity kicker in a venture debt deal: the right for the lender to buy a small number of your shares later at a fixed price, usually your last round price. They are quoted as a percentage of fully diluted equity, typically about 0.1 percent to 2 percent, or as warrant coverage, usually 5 percent to 20 percent of the loan value. Warrants are the main source of dilution in venture debt. Verify current terms, this is not financial advice.
What is a moratorium period in venture debt?
A moratorium, also called an interest-only period, is the early phase of the loan where you pay only interest or make no payments at all, before full principal-plus-interest EMIs begin. In India it is commonly 3 to 6 months, sometimes 6 to 12 months. It protects your runway right after drawdown, when the cash is meant to fund growth, not repayments, and is one of the most valuable terms to negotiate. Verify current terms, this is not financial advice.
What covenants are common in venture debt?
Common covenants in India include a minimum cash balance you must keep, regular MIS and financial reporting, limits on taking on further debt, restrictions on major decisions like large asset sales or change of control, and information rights for the lender. Breaching a covenant can trigger a default even if you are paying on time, so negotiate realistic cushions and cure periods. Verify current terms, this is not financial advice.
What interest rate does venture debt charge in India?
Venture debt in India typically charges interest of about 13 percent to 18 percent per year, higher than a bank term loan because the borrower is a loss-making, equity-backed startup. Global venture debt is lower, around 8 percent to 15 percent and often benchmark or SOFR-linked. On top of interest you pay an upfront processing fee of roughly 1 percent to 2 percent, sometimes an end-of-term fee, and you grant warrants. Compare the all-in cost, not just the headline rate. Verify current rates, this is not financial advice.
What is warrant coverage and how is it calculated?
Warrant coverage is the value of shares a lender can buy through warrants, expressed as a percentage of the loan. If you borrow ₹10 crore with 10 percent warrant coverage, the lender gets the right to buy ₹1 crore of shares at your last round price. The actual dilution depends on your valuation, so for a large company that same coverage may translate to well under 1 percent of fully diluted equity. Lower coverage and a higher strike price both reduce your dilution. Verify current terms, this is not financial advice.
What is an MFN clause in a venture debt term sheet?
An MFN, or most favoured nation, clause lets the lender match the best terms you give to any other lender. If you later raise debt on cheaper or more lender-friendly terms, the MFN holder can ask for the same protections. It is more common with multiple lenders or syndicated facilities. Founders should scope MFN narrowly, for example limiting it to economic terms only, so it does not block future financing. Verify current terms, this is not financial advice.
What are information rights in venture debt?
Information rights require you to share regular financial information with the lender: monthly or quarterly MIS, audited statements, board updates, and notice of major events such as a new funding round or a key departure. They let the lender monitor risk and are reasonable, but can become a burden if undefined. Agree the exact reports and timelines upfront and keep them aligned with what you already produce for your board. Verify current terms, this is not financial advice.
Rate, fee, warrant and covenant ranges are general market guidance for India as of 2026 and vary by lender, stage and deal. This is general information, not financial or legal advice. Verify current rates and limits, model your own numbers, and have a qualified adviser review any term sheet before you sign.
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AS | Founder, CFOmatrix | Finance Strategy & Equity Compliance CFOmatrix is a knowledge platform focused on how finance actually works inside growing companies. Every insight is shaped by real operating experience across startups and growth-stage companies, including cross-border setups. |