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NBFC Loan or Bank Loan for Small Business? Which one to choose?

Given that you run a company, it is easy to comprehend how dependent you are on conventional financial institutions. After all, very few organizations can endure unpredictability in economic cycles and successfully navigate challenges without the assistance of a business loan.

Those eager to develop their enterprises and scale up their operations often approach banks for financial assistance in the form of business loans. However, since banks have such rigorous lending requirements, most small firms cannot fulfill conventional banks' qualifying criteria for business loans.

As a direct consequence, they have difficulty meeting the criteria for their working capital. The advent of Non-Banking Financial Corporations (NBFCs) in India, on the other hand, brought about a dramatic shift like the situation there.

In recent years, non-traditional financial companies (NBFCs) have caught up to conventional banking institutions in terms of their ability to lend money to businesses. They have assisted several business owners in realizing their ambitions and expanding their operations. With us, let's have a look at the reasons why NBFC business loan is a preferable option to opt for.

NBFC vs bank loan- Which is Better?

Modular eligibility standards

This is the most obvious benefit of selecting an NBFC loan rather than a bank loan as your financial institution of choice. When it comes to giving out company loans, banks often adhere to tight lending requirements. They adhere to a stringent verification procedure to approve applications for business loans and need an enormous amount of evidence.

A solid credit score (750 or above), a minimum of three to five years of company vintage, a minimum annual revenue of Rs. 1 crore, etc., are examples of the kinds of requirements banks often seek from their customers. In contrast, NBFCs have more lax and flexible qualifying standards before they approve applications for business loans. They use a laid-back attitude to ensure their clients have a simple time obtaining finance. Even if your credit score isn't great and you don't have much expertise running a company, it's still possible to get a loan via an NBFC.

Rapid disbursement of funding

The preceding point is an extension of the argument being made here. As was just discussed, obtaining commercial loans from banks requires a rigorous verification procedure and filling out a substantial amount of documentation.

On the other hand, non-bank financial companies adhere to lending conditions that are not quite as severe. They have minimal qualifying requirements and need just the bare minimum of paperwork. Because of this, they have a very speedy process for distributing company loans. This makes it possible for owners of businesses to get immediate cash in times of crisis.

Competitive interest rates

Most people looking for loans are concerned about the interest rates that will be applied to their loans. A rise in interest rates will lead to an increase in EMIs, which will, in turn, result in a greater financial burden. NBFCs provide loans to businesses at interest rates far lower than conventional banks. When proprietors of companies take out loans from NBFCs, it indicates that their strain is lessened in some way.

Because they are mandated to be based on the Prime Lending Rate (PLR), which the Reserve Bank of India does not control, the interest rates that NBFCs charge are expected to be lower than those charged by banks (RBI). As a result, they have more leeway and can adjust the interest rates on their business loans to build a more diverse clientele. In addition to this, the loan processing fees and other costs that are collected by NBFCs are lesser when compared to the expenses that conventional banks levy.

Digital loan disbursement

The digital world has left little room for paper copies and tangible documents. [Case in point] [Case in point] [Case in point] With the use of digital platforms, the vast majority of NBFCs have begun to provide completely paperless business loans. They are now known as "Fintech Companies" since they have successfully integrated finance and technology. These fintech businesses make it unnecessary for business owners to leave their homes or places of employment to apply for and get finance.

To apply for an online business loan, they must go to the lender's website or download one of their smartphone applications. They can submit digital copies of the necessary papers, and within a day, the funds will be paid to their bank account. On the other hand, most financial institutions continue to use the conventional approach, which mandates that borrowers provide copies of their supporting papers and appear in person at the lending institution for verification purposes. This can require a significant amount of their time and effort, which they would have otherwise put into growing their company.

A pre-approved loan limit

In India, several non-banking financial companies (NBFCs) provide business loans with pre-approved lending ceilings. The maximum amount of this loan is available to the proprietors of the business to withdraw whenever they see fit. It is essential to be aware that the company proprietor is only responsible for paying interest on the borrowed sum, not on the total loan limit that is made accessible to them.

A deal like this helps company owners maintain their monthly installment payments (EMIs) at a manageable level, which results in further savings for the business owners. A pre-approved loan limit not only assures that a company will never run out of money, but it also frees them from the obligation of having to submit new business loan applications in times of need.


Since the beginning of this decade, non-bank financial companies have played an increasingly important role in the provision of business finance. It is anticipated that it will speed up even more due to the ongoing COVID-19 epidemic, which has caused companies’ significant monetary anguish.

You should keep in mind, now that you are aware that NBFCs are a superior option for business loans, that selecting the appropriate financial firm is just as essential. Now that you are aware about NBFC vs bank loan, make an informed decision about your business loan requirements.

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