Skip to main content

Business Loans: NBFCs vs. Banks - Making the Right Choice for Your Business

 As a business owner, you are well aware of your dependency on bank loans when your company has ups and downs. There are only so many companies that can weather economic ups and downs without a business loan. Businesses with capital shortages and cannot expand always turn to bank loans. Small and medium-sized enterprises (SMEs) are now being supported by the government through several programs and lending options. What you need to know about NBFCs vs. banks and which is preferable for obtaining business loans is provided below.



  1. Eligibility Requirements For Loans

Banks often have severe requirements they need to follow to approve a company loan. To ensure that the loan amount is legitimate, extensive background checks and papers are required. They also want you to have a high credit score, company management expertise, and a yearly turnover. The borrower will need to devote quite a bit of time to the entire process.

In contrast, Non-Banking Financial Corporations (NBFCs) follow a simplified procedure and have fewer approval procedures for loan applications to give their clients the necessary finance.  An NBFC makes it significantly simpler for someone with poor credit and no company experience to be authorized for a loan.

Also Read: What Is NPA And Its Impact On Indian Economy? 

  1. Interest Rates

Getting the money you need might be exhilarating, but it may also come with a large interest charge. You will be required to make larger EMI payments due to increased interest rates. NBFCs can help in this situation. In comparison to banks, NBFCs provide very cheap interest rates on business loans. So, if you obtain a business loan from an NBFC, you should not be concerned about having to pay excessive interest.

Because Non-Banking Financial Corporations' (NBFCs') interest rates are dependent on the Prime Rate, which is unregulated by the RBI, they may be quite low. They might thus alter their interest rates for business loans to appeal to a wider audience. Additionally, these financial companies often offer cheaper fees than banks for loan processing and other related services.

  1. Credit Scores

Banks follow rigorous guidelines and want a good credit score from borrowers because they view businesses with low credit scores as risks. Abhay Bhutada, MD of Poonawalla Fincorp, claims that a business loan may aid business owners in resolving any cash flow issues.

Even if the borrower has a poor credit rating, non-banking financial companies (NBFCs) may offer and grant small company loans. To lessen the danger of default, the borrower can be asked to pay a higher interest rate in this situation.

  1. Documentation

Because they don't require as much paperwork and documentation, non-banking financial companies (NBFCs) are where most individuals turn for business loans. On the other side, banks have a reputation for being quite stringent when it comes to paperwork approval. 

Banks may only approve your loan if you produce the required documentation. However, business loans from an NBFC are completed considerably more quickly than loans from a bank with the least amount of paperwork.

Also Read: Top 5 Personal Loan Providers In India

  1. Pre-Approved Loan Limit

You may get pre-approved business loan limitations from several NBFCs. It implies that you can withdraw money whenever you need to. As a result, you only pay interest on the amount you withdraw, not the entire allowed amount. You no longer need to apply for business loans every time a new opportunity arises, giving you more flexibility and saving you time.

Conclusion

According to the evidence shown above, NBFCs may have a modest advantage over banks when it comes to business financing. However, it's crucial to remember that banks are a more reputable and established source of funding. To decide which choice would be best for you, it is crucial to weigh the benefits and drawbacks of both banks and Non-Banking Financial Corporations.
Labels:

Comments

Post a Comment

Popular posts from this blog

What Is NPA And Its Impact On Indian Economy?

  In the past decade, several financial companies have made headlines with their NPAs. But what exactly are they? How are they impacting the financial sector? Do NPAs have an effect on India’s economy as a whole? This article will help you understand all this, let’s just dive right in! What Is NPA? When it comes to bank accounts, deposits made by the public are treated as liabilities, while loans and advances given by banks to their customers are treated as assets. According to the Reserve Bank of India, if the payments of interest or principle on the assets don't get paid for 90 days or more, they're considered non-performing assets (NPAs). Basically, those assets that have stopped working are NPAs. Banks and finance companies must categorize non-performing assets (NPAs) into three categories: Substandard assets, doubtful assets, and loss assets. Substandard assets are those that have been classified as non-performing for less than 12 months, doubtful assets for 12 months, and
Post a Comment
Read more

What Is Loan Settlement And How Does It Affect Your Credit Score?

Taking out loans is a common practice for many individuals to meet their financial needs. However, there may be situations where borrowers find it challenging to repay their loans in full. In such cases, loan settlement can be an option to consider. Loan settlement refers to an agreement between a borrower and a lender to resolve the outstanding loan balance for an amount less than what was initially owed. While loan settlement can provide temporary relief, it's important to understand its implications, particularly on your credit score. In this article, we will explore what loan settlement entails and how it can affect your credit score. Understanding Loan Settlement Loan settlement is a negotiated agreement between a borrower and a lender to settle a debt for less than the full amount owed. When a borrower faces financial hardship and is unable to make regular payments, they may approach the lender to negotiate a settlement. This typically involves offering a lump sum payment or
Post a Comment
Read more

Poonawalla Fincorp: Driving Financial Evolution Through Innovation and Market Leadership in 2024

  In the landscape of finance, Poonawalla Fincorp has emerged as a trailblazer, setting new standards of growth, innovation, and customer satisfaction. Led by the visionary guidance of Abhay Bhutada, MD , the company has navigated the complexities of the market with remarkable resilience and agility. Through a strategic focus on diverse product offerings, operational efficiency, and digital innovation, Poonawalla Fincorp has not only surpassed market expectations but has also redefined the benchmarks of success within the NBFC sector. Diverse Product Offerings: A Pillar of Success Central to Poonawalla Fincorp's success story is its comprehensive and carefully curated product portfolio. By recognizing and addressing the evolving financial needs of its clientele, the company has witnessed substantial growth across various loan categories. The expansion of segments such as pre-owned car loans, loans against property, and business loans reflects its astute market understanding and abi
Post a Comment
Read more