Here’s Why NBFCs Are Better Than Banks for Business Loan

NBFCs or Non-Banking Financial Companies have emerged enormously over the past few years. The NBFCs are regulated by the Reserve Bank of India (RBI) and other Government organizations. Also, they are entitled to disburse loans and acquire stocks or shares.

The Non-Banking Financial Companies have even speeded up the expansion of Micro Small and Medium Enterprises (MSMEs). NBFCs have come out successful because of their novel financial products and lenient loan-providing process compared to banking institutes.

It is essential to have familiarity with both financial mediators in any economic system. Non-Banking Financial Companies give banking services without having a banking permit or any legal agreement. These financial institutions need to get listed under the Companies Act of 1956 to provide banking services.

Bank accepts deposits from the people and makes credit. It can carry out lending activities either straight or indirectly via capital markets. Banks can deal with financial products/services typically authorized to them. They can accept demand deposits, whereas NBFCs can lend or invest, but they aren’t permitted to accept demand deposits.

Both banks and NBFCs provide impressive deals to their clients with distinct requirements of borrowings.

Why Choose NBFCs over Banks?

NBFCs have at present taken the lead in offering business loans to many individuals. Regardless of financial ups and downs, they have stayed the favorites for a business loan. Also, because of less harsh terms and processes, the NBFCs have a significant share in business loan funding.

These are some reasons to choose NBFCs over banks:

1. Competitive rates of interest

The interest rate is one of the major concerns for those looking for a business loan in Delhi. The Non-Banking Financial Companies offer competitive interest rates on loans than banking institutes. The base interest rate of the NBFCs is set based on the Prime Lending Rate that RBI does not regulate. Hence, these non-banking institutes enjoy better flexibility and can vary their interest rates in SME loans.

2. Minimal documentation

The Non-banking institutes process a significant share of collateral-free business loans. They can acquire the attention of loan seekers because of minimal paperwork/documentation. In comparison, the banks adhere to stricter rules when it is about documentation. If a borrower cannot provide the essential business loan documents, banks might deny processing the application for a loan.

3. Lenient eligibility criteria

As compared to banking institutes, the Non-Banking Financial Companies adhere to a lenient approach to loan eligibility. Even if you have a low credit score, you can qualify for a loan from NBFC without any difficulty. Moreover, lending full loan amount gives the non-banking institutes an edge over banks. A majority of NBFCs in India disburse the entire loan amount without any security or collateral.

4. Quick processing

Those applying for a business loan in Delhi have to meet the edibility criteria fixed by banking institutes. Non-Banking Financial Companies are obedient in this aspect, which makes the loan sanction procedure smooth and faster. Mainly, individuals apply for a business loan when they need immediate cash. Financial institutions have considered this as a scope to meet the requirement. It is only possible by quickly processing the NBFC loans at a good interest rate.

NBFC registration

Here are the steps involved in the NBFC registration process:

1. The first step is to apply online via the official site of RBI.
2. Once the application is submitted, the applicant will receive a reference number for easing the forthcoming inquiry.
3. The applicant needs to print the application form plus submit a hard copy of every essential document to the regional office.
4. The RBI regional office sends the application to the Central office that checks the application.
5. If the NBFC abides by section 45-I A of RBI, the registration certificate is granted.

Frequently Asked Questions

How can we apply for an MSME loan in India?

To get an MSME loan first, you need to fill in the online loan application form and submit each document to complete the procedure. After it is done, you get the loan amount in your account in a couple of days.

Is it safe to get a loan from Non-Banking Institutes?

Compared to loans offered by banks connected to external benchmarks, loans offered by Non-Banking institutes are connected to the Prime Lending Rate. In addition, the Non-banking institutes have easier and less stringent rules to provide loans to individuals with low credit ratings.