How Pakistan’s startups finance survival outside equity and banks

In recent conversations with founders and investors, I’m seeing six-month debt facilities for working capital priced at 18%-19% annualised return closing faster than equity rounds. That gap shows where startup financing is moving in Pakistan.

Data Darbar’s 2025 reports show disclosed equity funding remains well below the 2021-2022 peaks, but that view is incomplete. While equity volumes have compressed, another layer of capital has begun to appear: short-tenor, asset-backed private credit sourced from individuals and structured specifically for working capital constraints, not expansion.

Pakistan does not yet have a mature venture debt market. While 2025 disclosures increasingly reference hybrid structures, the debt portion is usually under-specified in public announcements, leaving pricing, tenor, security, and convertibility unclear. The facilities described here are different: sourced from individual investor networks, often Shariah-compliant, and secured against receivables, inventory, or revenue contracts.

Why This is Happening Now

The arithmetic has improved materially. After the policy rate peaked at 22%, the State Bank cut rates to 10.5% by late 2025. As KIBOR-linked rates fell, short-tenor credit dropped into the high teens, making the math tolerable for companies with predictable cash flows.

Banks rarely underwrite startup working capital risk, even for companies with real revenue and contracts. This leaves founders with few alternatives when cash conversion cycles stretch or inventory timing gaps collide with payroll.

Founders raise equity not to fund expansion but to manage receivables cycles, inventory timing, and cash gaps

“Debt isn’t more available or easier to raise in Pakistan—it barely exists for startups,” said Maha Shahzad, co-founder of Buscaro, a B2B mobility platform. “Banks remain largely unwilling to underwrite even companies with real revenue and contracts. In practice, that forces many founders to raise equity to cover working capital gaps, even when the business itself does not require expansion capital at that stage. If I had access to proper working capital facilities, I would not be diluting myself.”

Shahzad’s experience is not unusual. Founders raise equity not to fund expansion but to manage receivables cycles, inventory timing, and cash gaps. Equity becomes a blunt, expensive tool for what is fundamentally a cash timing problem. It is also permanent dilution in exchange for temporary liquidity. An 18% debt facility paid back in six months costs less than giving up 5% equity in a company that could 10x in value, but founders treat equity like it is free because the cost is deferred and invisible.

Why Banks Rarely Step In

Pakistan’s banking sector has limited structural appetite for startup lending. The reasons are institutional.

Regulatory capital treatment makes startup credit unattractive relative to government securities or large corporate lending. A bank can deploy its balance sheet into sovereign paper with favorable risk treatment rather than underwriting asset-light technology businesses.

Credit committees are optimised for collateral-based lending: factories, inventory, trade finance. Digital businesses with SaaS contracts or platform revenues do not fit these frameworks. A B2B SaaS company with $15,000 in monthly recurring revenue and 60-day receivables from enterprise clients can still look like vapor to a credit officer trained on manufacturing and trade.

The result is predictable: startups use equity to finance working capital, diluting ownership without needing expansion capital. This creates a vacuum. Private credit is stepping in to fill it, though at volumes commercial banks would never notice.

When Private Credit Actually Works

Whether private credit works for a startup comes down to pricing, cash flow quality, and enforceability. Most companies fail this test, but a meaningful minority now pass.

Private credit becomes viable only when three conditions align.

First, cash flows must be legible through receivables from credible counterparties, inventory turnover with predictable sell-through rates, or contract-backed revenues.

Second, unit economics must carry the cost. A logistics startup with PKR 3 million in monthly receivables from large corporate clients and a 45-day collection cycle can justify 18% debt. An early-stage consumer app with unpredictable revenues cannot.

Third, enforcement must be credible through documentation, covenants, and a realistic recovery path.

Companies that fail any one of these conditions typically revert to equity.

What the Market Actually Looks Like

These deals rarely appear in public trackers. Sarah Munir, CEO of invest2innovate, noted that “while overall equity volumes remain muted, more founders are experimenting with hybrid structures that combine equity with various forms of debt to address working capital needs.” In Q4 2025, only one disclosed equity transaction closed, while the remainder of deals tracked by i2i involved debt or hybrid structures. That ratio would have been unthinkable two years ago.

Pricing currently clusters between KIBOR+6 to KIBOR+10 for six- to twelve-month facilities, with outliers reaching KIBOR+12 for riskier counterparties and shorter-tenor arrangements.

Several ecosystem operators I’ve spoken with privately estimate that informal and semi-structured private credit deployments to startups exceed PKR 1 billion at any given time, though fragmentation and limited disclosure make precise measurement difficult. A negligible sum in Pakistan’s broader credit markets, but meaningful in a startup ecosystem where total disclosed equity funding in 2024 was approximately PKR 6.3 billion.

Some institutional investors, including venture funds with portfolio companies seeking PKR liquidity, have begun exploring structured credit options, though deployment remains limited and most activity still flows through individual investor networks.

Closing

As policy rates ease and more founders build businesses with predictable cash flows, short-tenor private credit will become easier to price and justify. Disclosure will lag reality, because most of these facilities will remain private and informal.

That gap between what is financed and what is reported distorts how Pakistan’s startup ecosystem is read. Equity announcements will continue to look weak. Survival and progress will increasingly be determined by access to working capital rather than growth capital.

At current scale, this market is too small and operationally complex for commercial banks to bother with. That’s why it will remain informal, opaque, and unmeasured. Anyone relying on equity data alone will continue misreading how Pakistan’s startups actually survive.