Why Choose NBFCs Over Banks for Business Loans in India?

NBFCs have changed the way businesses access loans in India over the past few years. They offer faster financing solutions with more flexibility than many traditional bank products. Since a large segment of businesses may find it difficult to obtain funding from traditional banks, NBFCs also help improve financial inclusion.

When managing your business’s working capital, choosing the right Business Loan is essential. Many business owners in India now prefer loans from NBFCs over traditional banks. NBFCs offer a simplified loan process with minimal documentation and faster approval timelines, making them an attractive option for urgent business funding needs.

What is an NBFC and How Does it Work?

NBFCs are Non-Banking Financial Companies (NBFCs) that provide loans and other financial services; however, they do not hold a full banking licence. NBFCs offer a variety of financial offerings such as personal loans, secured and unsecured loans, etc., to different types and categories of borrowers. 

NBFC lenders evaluate borrowers based on their business potential, cash flow, and ability to repay, as opposed to the very strict set of evaluation criteria typically used by banks. The majority of NBFC loan uses are to meet working capital or future growth requirements of the business and day-to-day operational needs. NBFC lenders give customers quick access to funds.

NBFC vs Banks: Key Differences in Business Loans

Knowing the difference between banks and NBFC lenders can help you make more informed decisions when deciding which lender to utilise.

Key Features of NBFC Business Loans

Understanding the features of business loans helps in making an informed borrowing decision. It is important to consider which loan features will be most beneficial for your business.

• Many Non-Banking Financial Companies (NBFCs) offer both secured and unsecured business loans with flexible repayment terms, loan amounts, and competitive interest rates.
• Borrowers can choose the loan amount based on their business requirements, and the EMI is typically structured to match their repayment capacity.
• NBFC loans are often processed with minimal documentation, allowing for faster approval than with traditional banks due to fewer paperwork requirements.
• The entire loan application process can usually be completed online through the NBFC’s website.

Advantages of Choosing an NBFC Business Loan

NBFCs offer several advantages over traditional banks for business financing.

Flexible Eligibility Criteria

NBFCs have more relaxed eligibility requirements for business loan applications, taking into consideration factors such as the age of the business, cash flows, and credit scores. As a result, even small, new businesses can qualify for unsecured loans with NBFCs, giving them access to much-needed capital.

Faster Approvals and Quick Disbursal

NBFCs provide much quicker indications of whether an application will be approved and faster disbursement of funds than traditional banks. Loan approvals are often faster than traditional banks, and funds may be disbursed quickly after successful verification.

Minimal Documentation and Hassle-Free Process

There are far fewer documentation requirements than with banks. Many NBFCs offer simplified documentation requirements compared to banks, depending on the loan type and borrower profile. This will greatly reduce the time business owners must spend securing funding from lenders.

Competitive Interest Rates

NBFC loans typically carry competitive interest rates determined by the applicant's creditworthiness. Competitive interest rates significantly reduce the overall cost of borrowing and allow owners to manage their monthly EMIs more effectively.

Collateral-free Loans

Many Non-Banking Financial Companies (NBFCs) enable businesses to obtain financing without pledging assets as collateral. This means there is no requirement to offer a security deposit when applying for loans, thereby reducing the overall risk to the borrowers.

Higher Loan Amount and Flexible Loan Terms

NBFCs will allow borrowers to choose both a suitable loan term and a competing loan amount. NBFCs offer flexible loan amounts based on the borrower’s financial profile and business requirements.

Pre-approved Loan Limits

Some NBFCs may offer pre-approved loan limits to eligible businesses based on repayment history and credit profile. This enables borrowers to draw on funding whenever they require it and only incur interest charges on the funds they have drawn. This allows businesses to better manage their working capital and save money on unnecessary interest charges.

How to Apply for an NBFC Business Loan Online?

Applying for an NBFC Business Loan online is simple and convenient.

Step 1: Fill the Application Form

Go to the preferred NBFC's Website and complete the online application form, providing all necessary business, income, and contact details.

Step 2: Upload Necessary Documents

Upload the required financial documentation, your bank statement, and identity verification. Double-check that all documentation is accurate and that the loan processor has all required documentation prior to submission.

Step 3: Verification and Approval

The lender assesses the loan application, the borrower's credit score, and the borrower's ability to make the required payments on time. Approval is generally provided much more quickly than by banks.

Step 4: Disbursal of Funds

The lender will disburse the loan amount to the borrower’s bank account. This allows for the prompt use of funds related to the stipulated purposes in the terms of the loan.

Things to Consider Before Choosing NBFC Loans

Carefully assess the following factors before applying for a Business Loan:

• Rates of interest charged and any fees incurred by the lender in connection with processing the loan.
• Compare both loan terms and repayment schedules offered by lenders.
• Know/calculate your ability to pay the loan's principal and interest and your monthly excess liabilities.
• Ensure that the requested amount matches the borrower's business needs.
• Review your credit history and score.

To Conclude

NBFCs are an increasingly popular option for small businesses because of their flexibility, speed, and minimal paperwork. Their simplified processes make it easier to get a Business Loan quickly. NBFCs also often provide unsecured business loans without requiring collateral. Therefore, they are often a suitable option for small businesses and growing companies that need quick access to funds.

It is important to choose a lender based on your specific needs and business goals. Make sure to review all available options carefully before applying. Explore Poonawalla Fincorp’s Business Loan and take a step towards achieving your business growth goals with the right financial support.

Read Also: Top 6 Mistakes To Avoid While Taking A Business Loan

FAQs

Why should I choose to get a Business Loan from an NBFC rather than a bank?

The loan application process is often much simpler and quicker through an NBFC because of quicker verification and approval times. NBFCs generally require fewer supporting documents than banks.

Can an NBFC issue me an unsecured Business Loan?

Many NBFCs offer unsecured business loans without requiring collateral, subject to eligibility and lender policy. NBFCs operate with a digital-first approach, offering 100% paperless application processes through websites or mobile apps.

Are interest rates lower with NBFC loans?

Interest rates on NBFC loans vary based on your credit profile, business stability, and repayment capacity. In some cases, NBFC loans, especially unsecured loans, may have higher interest rates than bank loans due to increased lending risk.

What documents do I need to apply for an NBFC loan?

Common documents include KYC documents, bank statements, income tax returns, and business financial records such as profit and loss statements.

How long will it take to get a Business Loan from an NBFC?

Many NBFCs offer faster approvals, and funds may be disbursed within a few business days after approval, depending on lender policy and verification.

What is the interest rate for NBFC Business Loan?

Interest rates for NBFC business loans typically range from 15% to 28% per annum, which is generally higher than bank rates.

What is the processing fees of NBFC Business Loan?

Processing fees for NBFC business loans usually range from 1% to 4% of the loan amount.