Taking out a business loan in India is no longer a difficult job if you fulfil the eligibility criteria but the prime concern among numerous individuals is to decide between a bank and an NBFC (Non-Banking Financial Company). Studies have proved that NBFCs are beating banks. The constant better performance from NBFCs has increased 15% client satisfaction in comparison with the banking clients. As per the current Financial Stability Report, the RBI also agrees on the same. Banks and NBFCs are financial mediums and the services provided by them are quite similar. This is why maximum borrowers get puzzled when it comes to selecting one for a business loan.
Banks and NBFCs provide business and personal loans. Nevertheless, every bank in India is included by the Banking Companies Act, while NBFCs are included by the Companies Act of 1956. Although maximum services provided by these two are same, NBFCs are not allowed by the Indian Government and Companies Act for providing services like accepting demand drafts, demand deposits, issuing cheques, and more. Moreover, when it comes to exchanging money, they are not part of the payment systems or settlement.
Why NBFCs Are Better Than Banks for a Business Loan in India
NBFCs don’t accept demand deposits but they can simply lend or make an investment. However, when it comes to taking out a business loan, maximum opt for NBFCs over banks and the reason behind this is banks have tough policies and take more time for sanctioning or approving quick business loan. Contrarily, NBFCs make sure the processing is faster and the required amount of business loan is disbursed within a few days. Albeit interest rates are high at NBFCs maximum times in comparison with banks, borrowers still like to take out loans from NBFC pondering the easy way of borrowing loan and less difficulty.
1. Fewer rules and regulations for lending
Since NBFCs are under Companies Act, lending rules and regulations are not as rigid as banks. This helps borrowers receive loans with ease. The borrowers are extremely satisfied due to the less complex loan processing.
2. Minimum documentation and paperwork
NBFCs have an amazing share of small business loans without security. Maximum people borrow a business loan from NBFCs due to minimum documentation and paperwork whereas banks can be rigid when it comes to approving documents. In case you cannot give necessitous documents, banks may not process your loan and reject the application. Nevertheless, NBFCs ask for less documentation and they process the business loans quicker than banks.
3. Fast processing
Applicants need to meet the eligibility criteria set by banks, but NBFCs are compliant in this aspect. This makes the loan approval process simpler, faster, and more seamless. Maximum times, people apply for a business loan where they instantly require money. NBFCs have considered this as a scope to fulfil the demand by fast processing the loans at a competitive interest rate. In fact, borrowers are prepared for compromising on rates of interest in case the loan amount is high and they could get the approval fast.
4. Priority lending for borrowers with poor credit score
Banks follow stringent rules and make sure that the borrower has a good credit rating since the business with a poor credit rating is considered risky. NBFCs may provide and accept small business loan even in case the credit score is poor. Nevertheless, in this scenario, you may require paying a higher rate of interest in balancing out the default risk.
5. Competitive interest rates
Interest rate is a prime aspect of a business loan. NBFCs have begun to focus on this area currently and have brought down the rates of interest to either similar to bank loan rates or lower to bank rates. With all other perks when the interest rate is also minimized, borrowers find this easier and more cost-effective. This results in lower EMIs for borrowers. Depending on the credit score, income, and payback, the interest rate is charged on the borrowers; nevertheless, it’s at competitive rates.
The Final Say
Regarding providing a loan in India, both NBFCs and banks will provide retail, personal, and business loans. And this is completely based on the payback ability of the borrower. The corporate sector usually likes banks; nevertheless, the retail sector selects NBFCs over banks. NBFCs offer easy business loan such as term loan, merchant cash advance, working capital loan, invoice discounting, etc. And the ratio of client satisfaction is also high here. NBFC sector will also grow further in the upcoming days. In case you are seeking to get a fast business loan approved, then the first option is an NBFC like Indifi because banks are more rigid in loan approvals.