The idea of going forward with a business loan has become a lot easier with the varied options that have been introduced in recent years. Business loan in India is no more a rocket science to avail with the growing number of options in the market. The borrower now has a choice to either avail a business loan from banks or even chose NBFCs as their lending partner.
Talking about NBFCs then they have a quick loan application process and their business loans interest rate are competitive with more easy terms and conditions.
Many borrowers rely on banks as the only sources of credit. But the market is now covered with the FinTech institutions such as NBFCs and Online Lending Companies. NBFCs are not banks, but they provide credit facilities.
NBFCs verses Bank
Banks and NBFCs both have different rules and regulations. Banks are regulated under the RBI, while the NBFCs are regulated as per the Companies Act, 1956. NBFCs are generally categorised into three types, namely loan companies, asset companies, and investment companies.
When MSMEs decides to avail a business loan, they usually find themselves in the dilemma to choose between a bank and an NBFC. However, based on the recent trends show that MSMEs are more inclined towards NBFCs because of their features that include more flexibility, more personalised services, and fast loan disbursement process.
Now let’s take a look, why?
Easy Loan Process
Banks have stringent rules and regulations when it comes to sanctioning a business loan as compared to NBFCs. When talked to leading NBFCs like Ziploan, they have an easier criterion. Their approval and disbursement process is quite smoother and a lot quicker. Also, the entire process is less complicated, and the loan amount is disbursed within as less as 3 working days*. Moreover, business owners who require an instant business loan generally avail a business loan from NBFCs.
Holistic Credit Evaluation Process
As compared to banks, NBFCs do not just rely on the credit or CIBIL score of a business owner. They have their own credit evaluation system in place, which evaluates the creditability of the borrower on a holistic approach. The NBFCs consider the business industry, years into the same business, bank statements, turnover, and ITR filed in the 2-3 previous years to assess the creditworthiness of the borrower.
Competitive Interest Rates
NBFCs have very competitive business loan interest rates. They provide loans at par or less than the banks most of the times. Additionally, some of the leading NBFCs like ZipLoan do not even charge for any prepayment fees after the payment of 6 EMIs. All of this makes borrowers more inclined towards NBFCs and finds it much affordable to avail a business loan from NBFCs.
Business Loan Eligibility
After analyzing the above benefits, another important aspect of why NBFCs are better than banks is that NBFCs have straightforward eligibility criteria or the checkpoints to sanction an MSME loan or even, in that case, a CGTMSE loan, which is offered under the government scheme launched mainly for the MSMEs. They also have simple and customer-friendly terms and conditions that make more and more business owners to get inclined towards NBFCs and have access to formal credit. Furthermore, they offer unsecured business loans, which means they offer business loan without collateral to avail a business loan.
Owing to the constant changes in the financial lending industry in the last decade, NBFCs have started playing a vital role and have emerged as significant lenders in the loan market. They play the role of a key driver in addressing and understanding the financial needs of the business owners, which somewhere done the line, banks have failed to do. Lastly, the decision lies in the hands of the borrower who should choose the best option for themselves and their businesses by analyzing their requirement and understanding their credit situation.
Frequently Asked Questions
Why is NBFC better than banks?
As compared to banks, NBFCs follow a more flexible approach to avail a business loan. They make it easy for customers to avail fast and quick financing. In spite of having a low credit score one can effortlessly avail for a business loan from a leading NBFC like Ziploan.
Is it safe to take a loan from NBFC?
Contradicting bank loans that are linked to external benchmarks, loans from NBFCs are linked to the prime lending rate. Also, NBFCs have more straightforward and relaxed policies to offer customers with low credit scores, although they come with high-interest rates.
What is a good credit score to get a business loan?
Most lenders offer a business loan with a minimum CIBIL score of 550. Howsoever, the closer the score is to 900, more the chances of getting the business loan on low-interest rates.
How to apply for an MSME loan?
To apply for an MSME loan: One must fill up the online business loan form of MSME loan and then submit all the relevant documents to complete the application process. Once done, you get the funds in your bank account within three working days*.