The Non-Banking Financial Institutions

September 23, 2021
financial institution

Many financial organizations have merged to form institutional conglomerates that offer a wide range of services, including investment advisory and banking. Some non-banking financial institutions, on the other hand, focus on a specific business line or are just more dedicated to financial services other than banking. Customers’ deposits are not permitted by law to be accepted by non-banking institutions.

However, provide investment advice, execute buy and sell orders on behalf of investors, and do research on financial markets, the economy, or specific investments. Traditional finance companies make up some non-banking financial institutions, while others are businesses that have evolved into financial services providers.

Non-banking financial institutions in developed economies are nevertheless subject to some regulation. Despite the fact that these companies are not technically banking entities and do not have banking licenses.

As a result, even if the regulating authority is local, there must still be responsibility and certain rules must be observed, such as maintaining certain capital requirements or financial reserves. Non-Banking financial institutions can be found in unexpected places, such as the automobile sector. In addition to making and selling automobiles, some automakers opt to take advantage of the fact that the majority of consumers require a loan in order to purchase one, and so expand into the finance sector.

Even if a non-banking financial organization is unable to take cash deposits from consumers, it must raise funds in order to meet minimum capital requirements. As a result, these businesses may be able to raise funds by selling bonds on the debt market. This is a means for a financial institution to raise money in order to boost the value of its balance sheet and have more cash on hand to conduct operations.

Consider the following options if you want to borrow money from a non-bank lender:

Providers of commercial loans

Commercial loan providers, often known as non-banking financial institutions. These are businesses that offer financial services such as loans and credit without having a banker’s license. This implies they can’t accept public deposits or provide standard banking services like overdrafts. They may, however, have less stringent lending standards and so be a viable and competitive source of capital.

Northern Ireland’s commercial credit providers include:

  • Individuals, private companies, and social enterprises in the small, medium, and micro company size range can apply for unsecured loans from the NI Small Business Loan Fund.
  • SMEs with excellent growth and export potential can apply for unsecured loans from the Growth Loan Fund.

Banks that make investments

Another sort of non-banking financial institution is a credit union. Investment banking firms may only give advisory services to their clients. This could include counseling a company on a merger or acquisition or recommending a deal through which the client could raise funds in the financial sector.

Development banks also provide underwriting services to businesses. These non-banking institutions may take the lead in public sales of a company’s shares or debt.

Community and social lending

You might be able to get a loan from a credit union that is less expensive than a bank loan. Various lenders also provide loans to brokerage firms, community businesses, and social enterprises. Look into community and social lenders.

Partnerships and joint enterprises

Entering into a joint venture with another company is one strategy to boost resources. This can provide a number of benefits, including increased capacity, access to new markets, and access to more technical expertise. Joint ventures and corporate partnerships are examples of joint ventures.

Factoring and invoice discounting are two different types of factoring

You might be able to borrow money on outstanding invoices. Invoice discounting, factoring, and supplier finance are all options for improving your company’s cash flow. Factoring and invoice discounting are two examples of factoring.

Financing with your own money

If you need long-term funding, you could sell shares in your company. This means you won’t have to pay back the debt or pay interest, but it will require you to relinquish some ownership of your company and its potential revenues. Venture capital, the stock market, and business angles are all possible sources of equity financing. See also equity financing.


Crowdfunding is a type of financing in which a group of individuals invest, lend, or give modest amounts of money to your company or concept. If you want to raise money this manner, you should first create a profile for your project on your website, then use social media and various business, family, and friend networks to generate money.

Friends and family

Credit can be extended by family and friends on a flexible, long-term, and low-cost (or no-cost) basis. You should make certain that both parties understand the terms of any loan. Seek funding from relatives and friends.

Insurance companies

Are risk-pooling institutions that engage with economic risks including mortality, damage, and loss hazards in order to generate a profit. General insurance and life insurance are the two primary categories of insurance firms. General insurance is a short-term contract, whereas life insurance is a long-term contract that lasts until the insurer dies.

Overall evaluation


  • Credit as a secondary source of funding
  • Clients are contacted directly, reducing the need for a negotiator.
  • Investors can expect high returns on financial products
  • The financial system’s liquidity or payment system


  • There are no regulations in place, and there is no control.
  • Operations that aren’t transparent
  • Risk to the financial system and the economy as a whole
  • Limited access to finance

Still undecided?

Despite the fact that they do not have a banking license, they must follow the same fair lending regulations as banks. Compare home loan offers from non-bank lenders against those from banks. Eligibility is one of the key reasons for using non-bank financial institutions.

Non-bank lenders are more likely to extend you a larger credit line than a bank. When you take out a loan from a non-bank entity and make sure you have the financial means to repay the loan plus interest. It’s also a good idea to look over the interest rates and comparative rates to avoid any unpleasant shocks later on, and double-check that the fees are appropriate for you.

Before borrowing from a non-bank lender, make sure you read any agreements thoroughly and find out whether any assets will be required as security.