Why Choose NBFCS Over Banks for a Business Loan in India

Feb 09,2021 Abhineet Pratap Singh 0

There are several reasons a business owner  may need a loan. May it expansion or upgradation of machinery or equipment. There may be other factors which can make  a business owner go for a loan  may increase the production at the time of blooming business. Earlier banks were the only body who used to give loans to small businesses . But now the tables have turned and other financial bodies have entered into the market. Non banking Finance companies ( NBFC) are  the new players in the loan market field. They don't possess a bank’s license, they are registered under Companies Act 2015.  NBFCs are now more active in providing loans to the small business owners than banks. 

In this blog we will discuss various points that why business owners prefer to take loans from NBFCs rather than going to the bank. 


Swift Services

NBFCs act in a more quick way as compared to the financial institutions.The process is smoother than that of the banks. When you apply for a loan in a NBFC it gets approved earlier than a banking institution. NBFC institutions are known for their quick services and credit appraisal methods. A business owner only applies  for loan when in need of urgent funds so does the NBFC for them. They make the approvals instantly for the loans as compared to the banks.


Attractive Interest Rates

While taking or giving a loan the first thing that comes up in mind is the interest. Different banks offer different rates for different types of loans. since the establishment of these non banking financial institutions have made a sea change in the interest rates.Lower rates have also brought down the amounts of the installments. The NBFC follows the prime lending rate which is not looked by Reserve bank of India. Hence NBFC have more flexible rates to offer to its customers. 


Rules and Regulations

NBFCs are enacted under the Companies Act and are not guided by the Reserve Bank of India. Due to this NBFCs have a high risk of default as compared to other banks. NBFCs do not have strict policies and regulations as compared to the banks so they offer much less interest rates and even with much less collateral security. And this is the reason why business owners prefer NBFCs over banks.


A Boon to Customers with Poor Credit Ratings

Business owners with a tarnished credit report are not all eligible for the loan according to the banks. But NBFCs provide loans to the one who have a bad credit report and charge a bit higher interest than the market. The banks mostly prefer a credit score of more than 600 to avail the loan whereas NBFC give loans below that aforementioned score.


Minimum Documentation 

Business owners do not want to waste their time while applying loans. For a businessman every second is important and is a chance of opportunity. The rigid process of banks to apply for loans is time consuming and sometimes irritates the one who is interested in taking a loan. This makes business owners take a loan from NBFC. They are quick in the process and require less documentation and paperwork.

NBFCs are mostly preferred for the following reasons

  1. More profitable :  taking a loan from the banks is much costlier as they provide loans on much high interest. On the other hand NBFCs offer less interest for loans.

  2. Easy registration : less requirement of paper and documentation makes it easy and less hectic for the business owner to take loan. 

  3. Quick approval : NBFCs are also known for providing loans to people with poor credit reports. They are absolutely instant in providing you a loan

  4. No penalty Clauses : Opposite to the banks NBFCs do not put penalties and the payment of the installments is easier as compared to banks. 



Q1. What is NBFC?

Ans. NBFC is a company registered under companies Act, 2015. A NBFC deals in depositing funds and raising funds. Its primary function is to accumulate funds and lend money to small business owners. NBFC was established  with the motive to support and grow small business sectors under the license from the Reserve bank of India.


Q2. Documents required for registration to NBFC?

Ans.Company’s Incorporation Certificate

  1. Company’s Bank Account with a minimum paid-up equity share capital of Rs. 2 crore

  2. MoA & AoA

  3. Address proof of the company

  4. Duly filled up and signed Annexure I, II, and III

  5. Details about the Directors

  6. Documents of administration and management of the company

  7. Audited financial accounts for the last 3-years

  8. Board resolution approving the company’s registration as an NBFC

  9. A brief overview of the company’s works and activities in the past 3 years

  10. Income tax, PAN, etc.

  11. Any other relevant documents.

 Q3. What is the process of NBFC registration? 

Ans. The first step is to apply for online Registration of NBFC to RBI. After the registration you will get a CARN number which will be used for future transactions. After the registration the hard copies of the documents are submitted in the regional RBI office. Then this application is further forwarded to head office and it is verified. And the License will be issued.


Q4. Is NBFC governed by the RBI?

Ans. NBFC is not governed by the RBI. RBI only issues a license to the NBFC apart from this it has no role in loan marketing of NBFCs.



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