NBFC Loans vs. Banks

In the modern day, the importance of financial resources is evident in the way that small businesses the world over strive to grow and maintain their operations. When it comes to funding, on the other hand, small business owners have to make up their minds on whether to go for Non-Banking Financial Companies (NBFCs) or banks. Each of these choices has advantages and disadvantages as well. In this blog, we will seek to highlight some of the aspects that differentiate banks vs. NBFC in order to help you determine which is the most suited mode of financing for your small business.

Introduction

Availability of funds is an important element in the incubation of small-sized businesses. It causes growth, pays for running expenses and provides scope for creativity. Two of the most common ways of getting funds in such situations are through banks and NBFCs, both of which come with their own pros and cons. Let us therefore investigate these further to assist you in deciding which option is well suited to meet your business requirements.

Understanding NBFCs

NBFCs, or Non-Banking Financial Companies, is a registered financial institution which offers banking services without having a banking license. They Conveniently serve those enterprises that do not fulfill the strict norms of a typical banking institution.

Understanding Banks

A Bank is described as a well-established financial organization that provides different services generation and management of money, loans, opening savings accounts among others. Banks are under strict laws and often require many documents and security before one is considered for a loan.

Eligibility Criteria

NBFCs

Loans from NBFCs are generally easier to get than loans from banks since there are less stringent eligibility requirements. For example, more aspects other than the credit score such as business performance and cash flow are taken into consideration.

Banks

Credit properties of the customer are closely monitored and controlled in banks, as one of the key factors is the credit worthiness of the borrower together with adequate collateral.

Loan Application Process

NBFCs

The procedure of loan application with NBFCs is mostly shorter and uncomplicated. They utilize technology for the provision of quicker clearance.

Banks

However, most banks will require the borrowers to fill out an application form, which takes longer due to the many steps involved in the application process.

Interest Rates

NBFCs

It is common for NBFCs to provide few restrictions on the amount of interest to be charged although it will depend on the borrowing risk profile of the individual.

Banks

If a company has a good credit record, it is easier for the company to get loans from the banks and with lower interest rates.

Loan Amount

NBFCs

Unlike in most banks, where there is often a ceiling on the amount of loan taken, NBFC's can be flexible with the amounts of loan provided based on the business demand.

Banks

On the other hand, banks tend to have more structure on the loan amounts that they can give, which might not favour the small businesses.

Repayment Terms

NBFCs

NBFCs can also extend more convenient repayment plans which help small businesses in easing cash flow management.

Banks

In most cases banks have standard repayment plans which are not very favorable for small enterprises.

Speed of Approval

NBFCs

The other factor that makes NBFCs appealing to businesses is the rapid approval procedures that they offer which is very useful for any business that requires funding very fast.

Banks

On the other hand, banks are known for their lengthy and tedious procedures when it comes to the approval and processing of loans causing some hold ups in getting the finances.

Documentation Requirements

NBFCs

NBFCs are institutions that take less time for documentation as essential business information suffices.

Banks

Bureaucracy is rampant in banks who usually ask customers to provide a lot of documents which is very painstaking especially for small business owners.

Collateral Requirements

NBFCs

Some newer NBFCs also provide loans or advances without seeking any security which means less dependency on collateral.

Banks

Awareness of the policy adopted by banks, they may need a lot more assets if not all of them in the case of the small scale entrepreneurs.

Flexibility in Loan Types

NBFCs

NBFCs can be expected to come up with a better range of loan products for specific business purposes.

Banks

Available loan products in banks are very few which makes it difficult to get an appropriate loan for the business.

Credit Score Consideration

NBFCs

NBFCs may be more lenient towards credit scores allowing corporations with not so good credit to access their services.

Banks

Most banks do not entertain businesses with compromised credit profiles as they tend to emphasize a lot on credit scores.

Customer Service

NBFCs

Normally, NBFCs place more emphasis on their customers and this provides the borrowers with a very favorable operational environment.

Banks

Bank customers have more customers and so the customer service approach tends to be very general.

Conclusion

There is no simple answer in the controversy of banks or NBFC loans for a small business. How does it choose depending on the given business situation and priorities? In case speed and flexibility are of utmost importance, then most likely NBFCs are the answer. More so, Banks provide more competitive interest rates where a credit history is available and collateral is provided. Critically assess your needs and pick the option that is most suitable for the objective of your business.

If you have any further questions, please don't hesitate to Contact Us:

216, Ansal Vikas Deep Building, Laxmi Nagar District Centre,

Near Nirman Vihar Metro Station, Delhi, 110092.

Phone: (+91) 9212132955

Email: info@chintamanifinlease.com