Majority of Indian small and medium enterprises (SMEs) use debt instruments for their long

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term financial needs due to reasons like lack of options in the equity market, a survey today said.

"Lack of options to explore equity financing, absence of exit route and a lower cost of debt are the key reasons why the Indian SMEs have been looking at debt as the main source of funding their business operations," CII said.

The survey conducted on 114 small and medium units said that over 60 per cent of the firms use debt financing for their long term financial needs.

However, it said that the proposed launch of the SME exchange is expected to give a fillip to the options for exploring equity finance, like initial public offers, venture capital and private equity.

Besides, the enterprises also said that the high cost of credit is going to have a negative impact on many of the business processes, such as capacity expansion.

"The resultant impact would trickle down to the bottom line, which is going to slide downwards," it added.