Most Indian promoters know two sources of money: their bank, and their family. There are at least a dozen, and the cheapest one is rarely the one they are using.
1. Banks
Still the cheapest rupee debt for most businesses, and the slowest to arrange.
- Cash credit / overdraft — revolving working capital against stock and receivables. Interest only on what you draw.
- Term loan — for machinery, building, expansion. Repaid on a fixed schedule, usually three to seven years.
- Bill discounting — money against an accepted invoice, ahead of the credit period.
- Letter of credit and bank guarantee — not funding as such, but they free up the cash you would otherwise block.
- Export credit — pre-shipment and post-shipment finance, often at concessional rates.
Suits: established businesses with audited accounts and security. Avoid if: you need money in under a month.
2. NBFCs
Faster, more flexible on security, and two to six percentage points more expensive. An NBFC will often lend against the same asset a bank refused, and will look at cash flow where a bank looks at collateral.
Worth using when speed matters more than rate, when the security is unconventional, or when you need a lender who will actually visit the site. Many businesses use an NBFC to move first and refinance to a bank twelve months later once the numbers are proven — which is a perfectly sound strategy if you plan it from the start rather than getting stuck there.
3. Non-convertible debentures
A debenture is simply a loan split into tradable pieces. Instead of one lender, you borrow from several investors against a common set of terms.
Two distinct routes:
- Private placement under the Companies Act — issued to a defined set of investors, typically institutions, family offices or HNIs. Requires a board and shareholder process, a debenture trustee where applicable, and dematerialised issuance.
- Listed NCDs under SEBI's framework — more disclosure, more cost, but access to a far wider pool.
Short-tenor NCDs of original maturity up to one year fall under the RBI's Commercial Paper and Non-Convertible Debentures Directions, 2024: minimum denomination ₹5 lakh, tenor between 90 days and one year, minimum credit rating A3, issued in demat form.
Suits: companies that can carry a credit rating and want to diversify away from a single banking relationship. Not realistic below roughly ₹25–50 crore of issue size, because the fixed costs — rating, trustee, legal, listing — do not scale down.
4. Commercial paper
An unsecured short-term promissory note, issued at a discount and redeemed at face value. Under the same 2024 RBI Directions: minimum denomination ₹5 lakh and multiples thereof, tenor between 7 days and one year, minimum rating A3, issued and held in demat form with a SEBI-registered depository.
For a company that qualifies, CP is often the cheapest short-term money available — frequently below bank cash credit rates — because you are borrowing from the money market directly rather than through a bank's margin.
Suits: rated, well-known issuers with predictable short-term needs. The barrier is the rating and the investor relationship, not the paperwork.
5. Invoice discounting and TReDS
TReDS is an RBI-regulated electronic platform where MSMEs auction their receivables from large buyers to financiers. The bidding is competitive, the money usually arrives in a few days, and — importantly — the facility is typically without recourse to you, so the risk sits with your buyer's credit rather than yours.
If you sell to large corporates or PSUs on long credit and are funding that gap with an overdraft, this is very often the cheaper answer and almost nobody uses it.
6. Government-backed credit
- CGTMSE — credit guarantee that lets a bank lend without collateral. Ceiling raised to ₹10 crore for guarantees approved from 1 April 2025.
- Mudra — for micro enterprises, in tiers from Shishu upward.
- SIDBI — direct and refinance lending to MSMEs, often on softer terms than commercial banks.
- State schemes — interest subvention and margin money assistance vary by state and by industrial policy.
These are not a separate source so much as a way of making the bank say yes. They are chronically under-claimed because the branch has no incentive to raise them.
7. External commercial borrowings
Foreign-currency debt from overseas lenders, under the RBI's ECB framework. Cheaper nominal rates, but you are taking currency risk unless you hedge — and hedging usually eats the saving. Genuinely useful when you have natural foreign-currency earnings to match it against. Otherwise it is a rate that looks good until the rupee moves.
8. Equipment and lease finance
Machinery financed by the manufacturer's own finance arm, or leased rather than bought. Frequently overlooked, often priced better than a general-purpose term loan, and it keeps your bank limits free for working capital.
9. Structured and mezzanine
Debt shaped around a specific situation — an acquisition, a promoter buyout, a lumpy project cash flow. Expensive, flexible, and appropriate when the alternative is diluting equity.
Choosing between them
| If you need | Look first at |
|---|---|
| Cheapest rupee money | Bank CC / term loan; CP if you are rated |
| Speed | NBFC, invoice discounting |
| No collateral | CGTMSE-backed bank facility, TReDS |
| Long credit periods | TReDS or bill discounting, not overdraft |
| To stop depending on one bank | NCDs, a second banking relationship |
| Machinery | Equipment finance or lease, not a general term loan |
The mistake we see most often is not choosing badly. It is not choosing at all — funding everything through one overdraft with one bank, at one rate, because that is the relationship that already exists.