{"id":9361,"date":"2020-03-05T08:30:21","date_gmt":"2020-03-05T03:00:21","guid":{"rendered":"https:\/\/swaritadvisors.com\/learning\/?p=9361"},"modified":"2020-12-03T16:27:54","modified_gmt":"2020-12-03T10:57:54","slug":"business-funding-for-nbfcs","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/","title":{"rendered":"How to Get Business Funding for NBFCs?"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Every business venture requires an adequate amount of funds to run its day to day operations. Insufficiency in finances can hinder the progress and compels one to shut down the business. &nbsp;Fund requirement gets double in case of financial entities like NBFC\u2019s. Non-Banking Financial Companies renders credit services after attaining <strong><a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\">NBFC License<\/a><\/strong> but without a banking License. Such Companies do not depend upon deposits of Current Account Savings Account (CASA) for fundraising. CASA deposits are only applicable for banks; wherein RBI grants Licenses to banks to accept cash from the public. NBFC\u2019s are deprived of such leverages. Therefore, NBFC must search for alternate financial sources of the money supply. This document serves as a guide to attain <strong>business funding for NBFCs<\/strong>. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a4aa02a4f6\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a4aa02a4f6\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/#Importance_of_business_funding_in_NBFC\" title=\"Importance of business funding in NBFC \">Importance of business funding in NBFC <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/#Things_to_consider_while_raising_funds_for_NBFCs\" title=\"Things to consider while raising funds for NBFCs\">Things to consider while raising funds for NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/#Sources_of_business_funding_for_NBFCs\" title=\"Sources of business funding for NBFCs\">Sources of business funding for NBFCs<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/#NBFCs_that_can_avail_automatic_route_in_FDI\" title=\"NBFCs that can avail automatic route in FDI\">NBFCs that can avail automatic route in FDI<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_business_funding_in_NBFC\"><\/span>Importance of business funding in NBFC <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Any registered NBFC startup needs fundraising to serve its\nbusiness objective. Regardless of having a potent business plan, NBFC can fail\ndue to lack of capital. NBFC plays a dominant role in the growing economy of\nIndia as it catches the attention of Fintech Companies. As a result, Fintech\nCompanies collaborate with NBFC\u2019s for innovating\ntechnology-driven tools.<\/p>\n\n\n\n<p>A venture capitalist initiates funding for a startup at preliminary\nor later stage based on the current market scenario and expected business\ngrowth. Fundraising acts are a significant resource that underpins the growth\nof NBFC startup.<\/p>\n\n\n\n<p>NBFC\u2019s must ensure the right allocation of funds in each of its segments to attain the goal of financial stability. The agenda of business funding for NBFCs should be carried on a regular basis since it is a never-ending process.<\/p>\n\n\n\n<p>Non-Banking Financial\nCompanies are inefficient to raise money at lower rates like banks from RBI.\nThus, they end up raising funds at a higher interest which further\nproportionally increase the hurdle rate to maintain Net Interest Margin (NIM)\nbetween 1 to 3%. It impels NBFC\u2019s to seek for alternative strategies like\nPublic Bond Issuance, External Commercial Borrowing and so on.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Things_to_consider_while_raising_funds_for_NBFCs\"><\/span>Things to consider while raising funds for NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are two measures that one has to take in the process\nof business funding for\nNBFC\u2019s which are as follows:<\/p>\n\n\n\n<ul><li>Evaluate the mismatch between assets and liabilities;\n<\/li><li>Minimize the mismatch in assets and liabilities.<\/li><\/ul>\n\n\n\n<p>In case of NBFC\u2019s, the assets\nrefer to the investments made by NBFC for working as a financing organization\nsuch as debt, equity and structured products whereas, the liabilities means amounts\nowed by the parties that have supplied the money to NBFC to carry out the financial\nactivities.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Sources_of_business_funding_for_NBFCs\"><\/span>Sources of business funding for NBFCs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Non-Banking Financial Companies can raise funds through\nvarious sources with deposits; some of them include: <\/p>\n\n\n\n<ul><li>&nbsp;<strong>Long term loans\nat low-interest rates<\/strong>&#8211; Once NBFC creates an amount required for\ndeployment in its course of operations, it can apply for a long term loan from\nthe bank. It is beneficial for NBFC\u2019s as banks lend at much lower interest\nrates owing to the nature of CASA deposits. Such type of loans can be secured\nor unsecured through Government Securities and its repayment can be made in a\nstructured or bullet schedule. NBFC must record the repayment of long term\nloans in the Balance Sheet along with the asset section. NBFC\u2019s must have a\ngood credit rating to raise a large sum of funds at competitive interest rates.<\/li><\/ul>\n\n\n\n<ul><li><strong>Foreign Direct Investment (FDI)<\/strong>&#8211; One of\nthe best funding options for NBFC is foreign investment. In 1991, the era of\npost-liberalization in the Indian economy, a tremendous increase of foreign\ninvestors in the NBFC was perceived. Recently, up to 100%, foreign investment\nis permitted under the automatic route in FDI. Thus, foreign investors don\u2019t\nrequire approval from RBI or FIPB and invest directly in NBFC\u2019s.&nbsp;<\/li><\/ul>\n\n\n\n<ul><li><strong>Issue\nCommercial Paper for small-term loans<\/strong>&#8211; Non-Banking Financial Companies can\nraise the required funds by issuing Commercial Paper. It is a short term\nunsecured Promissory Note issued by the financial Companies that have tenure of\n3 to 12 months. NBFC\u2019s with a minimum net worth\nof INR100 crores are eligible to list&nbsp;Commercial Papers as per\nReserve Bank of India. <\/li><\/ul>\n\n\n\n<ul><li><strong>Issue\nBonds<\/strong>&#8211; NBFC\u2019s can avail considerable money at the lowest costs by\nissuing Bonds. It is a common practice that\nhelps to reduce the rate on the sources of funds. The coupon rate on the Bonds\nis selected to reflect the rating profile of NBFC. The maturity profile of Bonds\ncorresponds to the repayment of interest schedules made by the NBFC\u2019s. Bonds\ncan also be issued to the retail investors, which is a huge advantage for NBFC\u2019s\nduring Bond placement.<\/li><\/ul>\n\n\n\n<ul><li><strong>Securitization of loans<\/strong>&#8211; NBFC\u2019s have raised INR 2.36 lakh crore between the period of October 2018 and September 2019 by selling their loans in the market through Securitization. HFC\u2019s and NBFC\u2019s heavily rely upon Securitization as an effective tool to manage liquidity, raise funds and correct ALM mismatch.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFCs_that_can_avail_automatic_route_in_FDI\"><\/span>NBFCs that can avail automatic route in FDI<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Non-Banking Financial Companies that offer the following services\ncan have an access to the automatic route in FDI:<\/p>\n\n\n\n<ul><li>Merchant Banking<\/li><li>Asset Management<\/li><li>Factoring<\/li><li>\u00a0Underwriting<\/li><li>Portfolio Management Services<\/li><li>Stock Broking<\/li><li>Venture Capital<\/li><li>Custodian Services<\/li><li>Leasing &amp; Finance<\/li><li>Housing Finance<\/li><li>Credit Card Business<\/li><li>Financial Consultancy<\/li><li>Micro and Rural Credit<\/li><li>Non-fund based activities<\/li><li>Investment Advisory Services<\/li><li>Forex Broking<\/li><li>Credit Rating <\/li><li>Money Changing Activities<\/li><\/ul>\n\n\n\n<p>The Government has introduced new <strong><a href=\"https:\/\/swaritadvisors.com\/learning\/business-funding-for-nbfcs\/\" class=\"text-primary\">FDI norms for NBFC\u2019s<\/a><\/strong> to accelerate Non-Banking Financial sector. It has eliminated the minimum capitalization norms, which is yet another boon for NBFC\u2019s. <\/p>\n\n\n\n<p>The rapid increase of Foreign\nDirector Investments will be highly beneficial for the NBFC Business Model due\nto easier and faster sanction of funds at reasonable interest rates. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<div class=\"shadow4\">Just like any other entity, NBFC\u2019s also requires abundant\nmoney to run its operations. The advancement in the financial sector enables many\nfunding sources for NBFC\u2019s. Today, Non-Banking Financial Companies are not\nsolely dependent on traditional lenders (Banks); rather, they can try multiple\nother fundraising methods.<br><br>In case, you need guidance on the latest modes of business funding for NBFCs, consult Swarit Advisors. We will give you complete knowledge about every aspect related to NBFC Business Model.  <\/div>\n\n\n\n<div class=\"read\"><p><b>Also, Read:<\/b> <mark><a href=\"https:\/\/swaritadvisors.com\/learning\/what-role-does-nbfc-play-in-the-economic-development-of-india-and-what-makes-them-inevitable\/\">What role does NBFC Play in the Economic Development of India?<\/a><\/mark>.<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"<p>Every business venture requires an adequate amount of funds to run its day to day operations. Insufficiency in finances can hinder the progress and compels one to shut down the business. &nbsp;Fund requirement gets double in case of financial entities like NBFC\u2019s. Non-Banking Financial Companies renders credit services after attaining NBFC License but without a [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":9362,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[89,544],"tags":[1021],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/9361"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/comments?post=9361"}],"version-history":[{"count":16,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/9361\/revisions"}],"predecessor-version":[{"id":17380,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/posts\/9361\/revisions\/17380"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media\/9362"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/media?parent=9361"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/categories?post=9361"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/learning\/wp-json\/wp\/v2\/tags?post=9361"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}