Non banking financial companies raise money through a mix of bank debt and market instruments, each suited to their asset mix, maturity profile, and risk appetite. A clear view of cost, tenor, security, and regulatory limits helps teams build a balanced liability stack that can support growth through cycles. In this guide, we unpack the Top 10 Funding Sources for NBFCs and explain when each source fits, what it costs, how it is structured, and the operational points to watch. The goal is to make complex choices simple, so both new professionals and seasoned leaders can compare options and design resilient funding strategies.
#1 Bank loans and working capital limits
Banks remain the primary lenders to NBFCs through term loans, cash credit, and overdraft lines. Tenors usually align with asset maturities, with amortizing structures for retail lenders and bullet or balloon options for wholesale books. Pricing references a benchmark such as MCLR or an external rate, plus a spread driven by credit rating, collateral, and covenants. Security can include receivables, cash flows, and fixed assets, with regular monitoring. Bank relationships also provide flexibility for drawdowns and prepayments. The key is to diversify across banks, ladder maturities, and match liabilities to the tenor and prepayment behavior of the lending portfolio.
#2 Non convertible debentures
Privately placed NCDs help NBFCs access medium to long term money from mutual funds, insurers, pension funds, and family offices. Structures vary across secured and unsecured, fixed and floating, with options for call or put after a lock in. Documentation is standardized, but investors expect clear covenants, information rights, and portfolio performance reports. Credit rating strongly influences the coupon and investor appetite, so maintaining robust asset quality is essential. NCDs broaden the lender base beyond banks, reduce concentration risk, and can be laddered by tenor to match asset maturities. Sound liability planning includes staggered redemptions and refinancing buffers.
#3 Commercial paper
Commercial paper is a short term instrument that funds working capital, pipeline disbursements, and temporary gaps between securitization or loan drawdowns. Tenors commonly range up to one year, with pricing reflecting short term rates, liquidity conditions, and the issuer rating. Because roll over risk is real, prudent NBFCs maintain committed backup lines and liquidity buffers. CP is typically unsecured, so investor confidence depends on transparent disclosures and consistent collections. It is not a fit for financing long tenor assets. Used correctly, CP lowers average cost of funds and adds speed, but it should sit within a defined liquidity risk framework and board approved limits.
#4 Securitization and direct assignment
By selling pools of receivables through pass through certificates or direct assignment, NBFCs convert illiquid loans into upfront cash to fund new originations. These transactions transfer credit risk partly or fully to investors such as banks and funds, while the NBFC continues as servicer in many cases. Pool selection, seasoning, granularity, and performance history drive pricing and credit enhancement needs. Securitization strengthens capital turnover, reduces asset liability mismatches, and diversifies funding away from on balance sheet debt. Strong data, audit trails, and servicer track record are critical. A disciplined pipeline of eligible pools keeps this channel reliable over time.
#5 Refinance from development finance institutions
Specialized refinance lines from institutions such as SIDBI, NHB, NABARD, and MUDRA support priority segments like microfinance, affordable housing, and agriculture. Rates are often competitive with longer tenors and grace periods, subject to end use conditions, eligibility criteria, and reporting requirements. These programs reward NBFCs that demonstrate strong governance, customer protection, and portfolio quality in targeted sectors. Access can be catalytic for scaling in under served markets because the funding is stable and aligned with development goals. To maximize benefits, institutions should integrate refinance forecasting into annual plans and maintain strict compliance on data submission, audits, and on ground verifications.
#6 External commercial borrowings and foreign credit lines
For eligible NBFCs with strong governance and hedging frameworks, overseas lenders provide diversified term funding through ECBs and bilateral credit lines. These facilities can lengthen tenor and deepen liquidity, but they introduce currency risk that must be hedged through forwards or swaps. Lenders assess business model resilience, asset liability management, and the hedging policy before pricing. Operationally, drawdowns, end use, and reporting follow regulatory rules. When structured prudently, foreign borrowings lower weighted average cost of funds and open repeat access to global pools. Disciplined treasury management and stress testing are required to ensure resilience under currency volatility.
#7 Subordinated debt and hybrid instruments
Subordinated debt strengthens the capital structure by absorbing losses after senior creditors, so lenders may treat it as regulatory capital within defined limits. Tenors are longer, coupons higher, and covenants tailored to preserve subordination. Some NBFCs also issue perpetual or quasi equity instruments that count toward core capital subject to conditions. Because these securities sit below other debt, investor diligence focuses on underwriting standards and protection mechanisms. The benefit is twofold. It provides patient funds that support growth and improves leverage headroom for additional senior borrowing. Clear disclosure and prudent leverage targets keep this channel dependable over cycles.
#8 Public deposits for eligible NBFCs
A limited set of deposit taking NBFCs mobilize public deposits within regulatory caps, maturities, and interest rate ceilings. Deposits diversify the liability profile and can be more stable when supported by strong brand trust, service quality, and transparent disclosures. Compliance is exacting and includes credit ratings, reserve requirements, advertisement rules, and timely repayment practices. Given fiduciary responsibility, boards must set conservative limits, maintain robust liquidity buffers, and invest in customer grievance redress mechanisms. For non deposit taking entities, this source is not available. For authorized institutions, disciplined governance converts retail confidence into long term funding that complements market borrowings and bank lines.
#9 Inter corporate deposits and loans from corporates
Large corporates, treasury arms, and other financial institutions extend short to medium term funds to NBFCs as inter corporate deposits or loans. Documentation is simpler than public issuances, allowing faster execution for time sensitive needs. Pricing reflects the NBFC rating, collateral, and liquidity conditions, with tenors tailored to match asset cash flows. Concentration risk should be monitored, and back up liquidity maintained. This channel is effective for bridging seasonal disbursement peaks, prefunding securitization pipelines, or refinancing redemptions. Strong reporting practices and periodic engagement with lenders preserve confidence and enable repeat access at competitive costs overall.
#10 Equity capital and rights issues
Equity is the foundation that supports leverage and resilience. Primary issuances, rights issues, and private placements with long term investors fund growth, technology, and risk buffers. While equity is more expensive than debt in the short run, it reduces solvency risk, attracts lenders, and can lower all in borrowing costs over time. Successful raises depend on consistent asset quality, predictable unit economics, and a credible strategy for scale and governance. Investor relations, transparent disclosures, and disciplined capital allocation build trust. Board reviews of capital adequacy, dividend policy, and growth plans ensure that equity works in concert with debt to create a stable platform.