In today’s dynamic business environment, access to capital is essential—but equally important is how that capital is structured. For decades, traditional term loans were the go-to choice for businesses looking to finance expansion, acquire assets, or meet working capital needs. But that legacy approach may now be holding companies back, especially those that are growing fast or operating in asset-heavy sectors like retail, manufacturing, logistics, and coworking.
As businesses evolve, so must their financing strategy. This blog explores why term loans may no longer be the best option—and what alternatives like Operating Lease and Cashflow Optimization Models (like those offered by RFin) can offer instead.
The Problem with Traditional Term Loans
- Upfront Burden on Cash Flow
Traditional loans require businesses to pay EMIs from Day 1, regardless of whether the underlying asset has started generating returns. This puts immediate pressure on cash flow—particularly during capex-heavy expansions or store rollouts. - Debt-Laden Balance Sheet
Loan liabilities sit directly on the company’s balance sheet, which:
– Reduces debt capacity for future funding
– Negatively impacts financial ratios (like D/E, ROA, ROCE)
– Diminishes attractiveness to lenders and investors - Limited Tax Efficiency
While interest payments are deductible, the principal repayment is not. Additionally, depreciation on assets may not provide substantial tax relief in early years—making term loans far less tax-efficient than leasing models. - Fixed, Rigid Structures
Most term loans lack flexibility. If business cycles shift, assets become obsolete, or newer tech enters the market, you’re still locked into a fixed EMI structure with no room for agility or early asset replacement. - Working Capital Gets Blocked
In asset-heavy industries like retail, manufacturing, or logistics, massive upfront investments go into infrastructure, machinery, or fit-outs—leaving less liquidity for marketing, inventory, hiring, or customer acquisition.
The Shift to Smarter, Modern Alternatives
Operating Lease
Instead of buying an asset or taking a loan, companies lease it for a fixed period with:
- No ownership, no depreciation headaches
- 100% tax-deductible rentals
- No balance sheet debt
- Flexibility to upgrade, return, or buy at end-of-tenure
- Lower Total Cost of Ownership (TCO) for non-core assets
Used by companies like Giva, Haldiram, 91Springboard, and Pack8 through RFin’s platform.
Sale & Leaseback (SALB)
Have existing assets? You can monetize them without losing usage. Through RFin’s Cashflow Optimizer:
– Sell assets to RFin at book value
– Lease them back over 12–36 months
– Convert Capex into OpEx
– Unlock immediate liquidity
– Achieve up to 18%+ cashflow gains over lease period (via tax savings)
This model recently helped Pack8 increase cashflows by ₹45 Lakhs without impacting operations.
When Should You Rethink Term Loans?
If your business is:
– Growing fast, but CapEx-heavy
– Looking to optimize taxes and cash flow
– Trying to maintain a lean balance sheet
– Raising equity or preparing for valuation events
– Facing credit limits with current lenders
… then it’s time to move beyond term loans.
Final Thoughts
Traditional loans were built for a different era—where owning every asset and carrying fixed debt were acceptable trade-offs. Today’s market requires flexibility, capital efficiency, and smarter structuring.
RFin’s Operating Lease and Cashflow Optimizer models offer an intelligent alternative that aligns with modern business goals: rapid expansion, strong financial optics, and tax-optimized operations.
📩 Want to explore how leasing could work better than your next term loan?
Let’s reimagine your financing strategy together.
