A Non-Convertible Debenture is a privately placed debt instrument that allows a business to borrow directly from institutional investors — family offices, AIFs, and private credit funds — at a fixed interest rate for a defined tenure, without converting the debt into equity. A term loan is a standard bank or NBFC credit facility repaid in fixed instalments over a defined period. The right choice between the two depends on four factors: ticket size, tenure required, the lender profile available to you, and whether your cash flow profile fits a standard bank product.
Most mid-sized Indian businesses default to term loans because they are familiar. Many of them would be better served by an NCD — and do not know it.
What a term loan actually offers
A term loan is the most common debt instrument for business expansion in India. You borrow a fixed amount from a bank or NBFC, repay it in equated monthly or quarterly instalments over 3-7 years, and provide security against your assets or receivables.
The advantages are speed, familiarity, and competitive pricing from established lenders. For businesses with strong bank relationships, strong balance sheets, and requirements that fit within standard credit parameters, a term loan is often the right and fastest solution.
The limitations become apparent at the edges. Banks have regulatory exposure limits — they cannot always write a large enough ticket for significant expansion requirements. Their tenure is often insufficient for long-gestation projects. Their product structures are relatively rigid — repayment schedules, security requirements, and covenant packages leave little room for customisation. And for businesses in sectors that banks view cautiously — real estate construction, certain manufacturing segments — availability may be limited regardless of the business quality.
What an NCD offers that a term loan cannot
A Non-Convertible Debenture is a corporate bond. The business issues it; an institutional investor subscribes to it. The NCD specifies the coupon rate, the tenure, the repayment structure, and the security package. Once placed, the NCD can be listed on NSE or BSE, making it tradeable — which gives the investor a liquidity option that a standard term loan does not provide.
For the borrower, the advantages are structural. NCDs can accommodate longer tenures — 5 to 10 years is not uncommon — that banks rarely offer on unsecured or semi-secured lending. The subscriber base includes family offices and AIFs that are explicitly seeking mid-market corporate credit exposure and can write large tickets — ₹30 crore to ₹200 crore — that a single bank relationship may not support.
The coupon rate on a privately placed NCD is typically higher than a bank term loan — reflecting the credit risk premium that private investors demand. But the trade-off is access to a larger ticket, a more flexible structure, and a longer tenure. For the right transaction, that trade-off is worth making.
The four questions that determine which to use
How large is the requirement? Below ₹15 crore, a term loan from an NBFC or bank is usually the most efficient route. Above ₹30 crore, an NCD becomes worth considering — either as the primary instrument or alongside a bank term loan.
How long is the tenure required? If 3-5 years is sufficient, a term loan usually works. If the project or use of funds requires 7-10 years — common in real estate, infrastructure-adjacent manufacturing, and certain healthcare expansions — an NCD is often the only practical option.
Does a standard repayment schedule work? Term loans require regular principal repayment from operating cash flows. If the project has a long gestation before it generates cash — a real estate development, for example — a bullet repayment structure (principal at maturity) in an NCD is significantly better aligned with cash flow reality.
Who are the right lenders? If your bank relationships can cover the requirement, start there. If the requirement exceeds what banks will provide, or if the sector or structure does not fit bank credit policy, an NCD placed with private credit funds and family offices becomes the practical route.
The structuring question most businesses miss
The instrument is only as good as its structuring. An NCD with the wrong coupon, inadequate security package, or misaligned tenure will either fail to place or create problems at maturity. This is where specialist advisory creates genuine value — not just in knowing which instrument to use, but in designing the specific terms that make it placeable with the right investors at the best available price.
India's private credit market reached USD 12.4 billion across 166 transactions in 2025 — a 35% increase on the prior year. The capital is available. The question is whether the instrument is structured correctly to access it.
Eone Capital structures and places NCDs alongside term loan arrangements for businesses with requirements of ₹30 crore and above.
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