With long-term loans being tough to come by for mid-sized Indian companies employing between 50 and 500 people, most of them depend on private equity, trade sales and mergers.
This aspect came to light in the latest International Business Owners' Survey by professional services firm Grant Thornton.
Around 22 per cent of the 500 Indian mid-sized firms covered in the survey said they planned to attract private investors in the next 10 years. Another 22 per cent said they would merge their business with others, and 7 per cent said they were looking at a trade sale.
The survey said mid-sized business owners in India generally relied on loans of less than five years' maturity as their principal source of funding. They are more prone to overdraft than their global counterparts.
"Overseas companies are relying more on long-term sources of finance, while Indian companies are looking more to the short term," Grant Thornton's India partner Vishesh Chandiok said.
As a result, these mid-sized firms have had to rely more on promoter equity than institutional equity. Around 11 per cent of the respondents to the survey said institutional equity formed a part of their financing, while 39 per cent have had to make do with the equity of promoters.
The ratio of promoter and institutional equity in India is 3.5, which is among the highest in the 19 countries covered in the Grant Thornton survey. Only four countries -- Japan (11), Germany (6.5), South Africa (4.7) and Hong Kong (3.8) -- have ratios higher than India. The global average is 2.5.
As many as 19 per cent of the Indian respondents said their current sources of funding would not support their business plans.
Globally, only 11 per cent of the respondents said they were vulnerable to a funding shortfall. Respondents in only three other countries -- Russia (28 per cent), Mexico (26 per cent) and Hong Kong (22 per cent) -- have reported a funding gap higher than India.
Little wonder then that India is the only country covered in the survey where respondents have cited financial constraints as the most important barrier to expansion.
Respondents in other countries cited lack of knowledge about markets, political and social instability, difficulty in finding representatives in other countries and bureaucracy as the main barriers.
© 2025