Debt Fund Raise · Question

Why do lenders insist on promoter contribution before sanctioning debt?

Short answer

Lenders want promoters to put their own money into a project first because it shows real commitment and creates a cushion that takes losses before the lender does. A borrower who has risked nothing has little to lose by walking away. The required share varies by lender, sector and project risk, and is stated in the sanction terms.

In more detail

Lenders call this the skin in the game. If a project is funded entirely by debt, any shortfall in sales or cost overrun lands on the lender. When the promoter has invested a meaningful share, the promoter absorbs the first loss and has a strong reason to see the project through.

Lenders also read the contribution as evidence of confidence. A promoter who believes in the numbers is usually willing to back them with their own funds.

Several questions come up during appraisal:

Is the contribution adequate for the size and risk of the project?
Is it brought in upfront, or promised for later?
Where does it come from: savings, retained profits, fresh share capital or loans from relatives?
Is it real money, or an accounting entry that returns to the promoter in another form?

Contribution brought in as equity or as unsecured loans that are subordinated to the lender is usually looked on more favourably than short-term borrowings, because the latter may simply shift risk elsewhere.

Cash invested, land or building already owned and used for the project, and in some cases expenses already incurred on approved project items may count, subject to valuation and the lender's acceptance. Ask which items will be recognised before you plan.

Avoid circular funding

Borrowing the contribution from another lender or from the project's own vendors can weaken the proposal. Lenders usually check the source and may reject it.

Key points

Promoter contribution shows commitment and absorbs first losses before the lender.
Required share depends on the lender, sector and risk of the project.
Lenders check the source of the funds and whether they are brought upfront.
Land or incurred project expenses may count, subject to lender acceptance.
Borrowed or circular contribution can weaken a proposal during appraisal.

Who this applies to

Promoters planning a new unit, plant or building project.
Finance heads arranging means of finance for expansion.
Owners surprised by the equity share a lender expects.

Last reviewed 3 October 2026

This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.