As a business owner, your reliance on traditional banks is quite understood. After all, very few businesses can survive unpredictable business cycles and manage headwinds without availing of a business loan. Those looking to scale up their operations and expand their businesses also turn up to banks for taking business loans.
However, due to banks’ stringent lending terms, most small businesses fail to meet traditional banks' business loan eligibility criteria. As a result, they struggle to fulfil their working capital requirements. But the situation has changed immensely after the emergence of Non-Banking Financial Corporations (NBFCs) in India.
In recent years, NBFCs - (Non-Banking Financial Companies) have marched shoulder to shoulder with traditional banks in providing business loans. They have been helping several entrepreneurs to realise and expand their dreams. Let’s look at the advantages of choosing an NBFC over a traditional bank for availing of a business loan:
1. Flexible eligibility criteria
This is the most distinct advantage of choosing an NBFC over a bank. Banks usually have stringent lending criteria for providing business loans. They follow a strict verification process and humungous documentation for approving business loan applications.
For example, banks usually ask for things like a good CIBIL score (750 or above), a minimum of three to five years of business vintage, a minimum annual turnover of Rs. 1 crore, etc.
In comparison, NBFCs have lenient flexible eligibility criteria for approving business loan applications. They follow a relaxed approach to ensure easy financing for their customers. One can easily qualify to avail of a business loan with an NBFC even with a lower credit score and little business experience.
2. Quick disbursal of funds
This point can be taken as an extension of the above point. As mentioned above, availing of business loans from banks involves a stringent verification process and lengthy paperwork. This can consume a lot of time.
On the other hand, NBFCs follow somewhat less stringent lending terms. They have a relaxed eligibility criterion and minimum documentation. Hence, their business loans are disbursed quickly. This allows business owners to get quick funding in the hour of need.
3. Competitive interest rates
Most loan seekers worry about interest rates levied on their loans. Higher interest rates result in higher EMIs and thereby, a larger financial burden. As compared to traditional banks, NBFCs offer business loans at lower interest rates. It means that there is reduced pressure on business owners when they avail of a loan from an NBFC.
Interest rates levied by NBFCs Business Loan likely to be lower because they are stipulated as per the Prime Lending Rate (PLR), which is not regulated by the Reserve Bank of India (RBI). Therefore, they enjoy greater flexibility and vary their business loan interest rates to attract a larger customer base.
In addition to this, loan processing fees and other charges levied by NBFCs are also a bit lower as compared to traditional banks.
4. Loan disbursal through a digital process
The new-age digital world has left very little space for hard copies and physical documentation. Most NBFCs have started offering 100% paperless business loans with the help of digital platforms. They have combined Finance and Technology to evolve as “Fintech Companies”.
Business owners don’t need to step out of their home or workplace to avail of financing through these Fintech companies. All they need to do is visit the financier’s website or download their smartphone apps and apply for an online business loan. They can upload soft copies of the required documents and get the money transferred to their bank account within 24 hours.
On the contrary, most banks still follow the traditional method, requiring the borrower to submit hard copies of the documents and be physically present at the branch for verification. This could involve a lot of their time and effort, which they would have otherwise invested in their business.
5. A pre-approved loan limit
Several NBFCs in India provide business loans with pre-approved loan limits. Business owners can withdraw funds from this loan limit as and when required. An important thing to note here is that the interest is charged only on the amount that is used by the business owner and not on the entire loan limit available to him or her.
Such an arrangement helps business owners in keeping their EMIs low, resulting in additional savings for them. Also, a pre-approved loan limit ensures that businesses are never short on funds and they don’t have to make fresh business loan applications in time of need.
Back in the day, banks were the main source of lending for someone wanting to avail of a Business Loan. However, today NBFCs (Non-Banking Financing Companies) have emerged as equally strong options for borrowers because of their flexible lending structure. Below-mentioned are some of the key reasons why taking NBFC Business Loans is the best idea:
NBFCs require less documentation than traditional banks, which can make the loan application process quicker and easier for businesses.
NBFCs generally have more flexible eligibility criteria for Business Loans than traditional banks.
Most NBFCs do not require any collateral to process the loan.
NBFCs are generally known for their quick loan processing times, as they typically have simpler and more streamlined loan application processes. This can be especially beneficial for businesses that require immediate funding.
NBFCs may be willing to offer higher loan amounts than traditional banks, which can be especially helpful for businesses that need a significant amount of funding to grow or expand.
Every NBFC typically has its own set of eligibility criteria when it comes to offering NBFC Business Loans. However, here are some common eligibility criteria that most NBFCs consider, and they are as follows:
Please note that the above-mentioned Business Loan eligibility criteria list is indicative. The lender may have additional eligibility requirements at the time of loan processing.
To make your borrowing experience seamless and smoother, most NBFCS have a less stringent documentation process. They require minimal documentation because the shorter the document lists for getting a Business Loan, the easier is the process. You simply need to keep the following documents ready to avail of an NBFC Business Loan:
Business Address Proof
Rent Agreement/Utility Bills
Bank statements for the last six months
The contribution of NBFCs in providing business financing has been on the rise constantly for a decade. It is expected to accelerate further owing to the prevailing COVID-19 pandemic, which has caused huge financial distress to businesses.
Now that you know that NBFCs are a better choice for business loans, remember it's equally important to choose the right financial company. Poonawalla Fincorp offers business loans for micro, small, and medium-sized enterprises (MSMEs) in India at competitive interest rates. You can browse through our products and choose the one that's best suited to your requirements.
Q.1: Why do people prefer NBFC over banks?
NBFCs offer end-to-end solutions with an easy application process and fast approvals making the loan process faster than banks.
Q.2: Is it better to take a loan from a bank or NBFC?
It is preferable to take a Business Loan from NBFCs as they have simple eligibility criteria and more streamlined loan application processes.
Q.3: What are the advantages of NBFCs?
NBFCs offer several advantages to borrowers, particularly those who may not have access to banking services or those who need quick and flexible lending options.
Q.4: Why is NBFC different from banks?
Though banks and NBFCs have some similarities in terms of the financial services they provide, there are several key differences, particularly in terms of their regulatory framework, deposit-taking capabilities, and priority sector lending requirements.
Q.5: Do I need a high credit score to avail of Business Loans from Poonawalla Fincorp?
You must have a credit score of 750 and above to avail of a Business Loan from Poonawalla Fincorp.
Q.6: What is the loan tenure for Poonawalla Fincorp Business Loan?
You can opt for a Poonawalla Fincorp Business Loan for a tenure of up to 36 months.
CIBIL score for loan applications is one criterion that is required to be fulfilled even when booking a car or Pre-owned Car Loan. For getting a car loan or Pre-owned Car Loan, a good CIBIL score is required as it ensures the lender about the individual’s financial discipline and ability to repay on time.
Checking your CIBIL score or credit score is considered a good habit. You can check your credit score anytime and as often as you wish to.
If you have a CIBIL score of 750 and above, the chances of getting a loan at an attractive interest rate are higher. The CIBIL credit score is usually a value between 300 and 900.
What, if your CIBIL score is high? Why the CIBIL score is so important? If you are looking for answers to these questions, weâ€™ve got the answers ready for you. A credit score is a 3-digit score given by any of the credit bureaus - CIBIL, Experian, Equifax or CRIF High Mark, based on your past and present credit behavior.