Every entrepreneur will have the ultimate goal of seeing his or her business take off. Sometimes, that means an extra flow of cash. Many businesses require loans to make their dreams a reality. With all of these options, it can get really confusing. Banks form one major category, while on the other hand, an NBFC means Non-Banking Financial Company. Both offer loans, but with different pros and cons. The right choice of partner for your business loan can be considered the key to cracking the code for success. Let’s take a closer look at banks and NBFCs to see which one is a better fit for business loan in India.
What are NBFCs?
NBFCs are specialized financial institutions similar to banks. They do provide financing and investment products, but unlike the banks, they can’t collect everyday checking or savings accounts from the general public. This allows them somewhat more flexible loan requirements and allows them to be a good fit for companies that might not qualify for a bank loan.
However, NBFCs are still regulated by the Reserve Bank of India, under slightly different rules than are in place for banks. This difference can sometimes translate to a faster and more streamlined approach to lending.
What are Banks?
Banks are those traditional financial institutions with whom we are all very familiar. They are almost like the authorities in your money matters, taking deposits from people and offering various products, such as loans, savings accounts, and investments. Banks take extra care to make sure your money is safe. This is great, but it also means they might be stricter about who they lend money to. They usually want to see a good history of managing money (credit history) and proof your business is doing well financially before approving a loan.
Why NBFCs Might Be Better:
Though banks are a big players, the NBFCs have stepped up as a strong alternative for several reasons, including the following;
Quicker Approvals and Cash in Hand
NBFCs have grown in reputation as compared to banks, given the ease and speed connected with dealing with them. They usually require less paperwork and an easy application procedure. That means getting approved faster and accessing the much-needed money quickly to be a lifesaver for businesses requiring direct, immediate access to funds. Be it an unexpected expense, a sudden growth opportunity, or just keeping cash flow going; applying for an MSME business loan in NBFCs can make quite a difference.
Easy Eligibility Criteria
Traditional banks usually look to have businesses with a clean record and strong financial backbone. This can become a high barrier to entry for most MSME and small businesses in their early days. NBFCs, however, may be willing to lend to those with low credit history or even to companies which would not be eligible to take a bank loan. They would be most willing to consider your business’s future potential and growth prospects, hence making them a handy option for small businesses with great ideas but a rather low financial history.
Industry Know-How
NBFCs are experts in serving specific industries. This enables the development of in-depth knowledge about the challenges and unique financial needs of these sectors. This can be a huge plus because NBFCs will have custom loan products for your business model and growth path. For example, an NBFC lending to restaurants might have flexible repayment structures that seasonally factor in dips or low periods for your business. That way, the loan repayments become affordable and do not affect the cash flow.
Digital Loan Applications
Most of the NBFCs leverage technology to make the loan application process smooth and user-friendly. Online applications are mostly available, and with quicker turnaround time on approvals, they really save you time and effort. This could be useful for busy entrepreneurs who lack the time or other resources to go after complicated loan applications in person.
Conclusion
In the dynamic business environment, securing the right financing can mean staying ahead of the curve. Getting the right loan can make or break your chances of success. With the traditional stronghold of banks over the business loan landscape, NBFCs have challenged this way by coming up with a solid case for MSME Business owner looking for faster, more hassle-free, and perhaps more flexible routes to financing. Therefore, an NBFC could be an optimum selection for your business loan.
Also read: Application for Business Loan Rejected? Here’s What to Do Next
