Business loans help entrepreneurs to fulfill their business goals by providing required funds. Business loan in India is generally availed from an NBFC or a Bank. While both have their pros and cons, it depends on the borrower as to which factors are more important to them. Let us have a look at some of the factors that differentiate an NBFC from a bank.
Businesses are required to have a healthy amount of liquid money to keep up with their operations, expand, invest in new equipment and machines, and hire new employees. Business loans from NBFCs or banks are what provide businesses with the required funds. While some prefer banks for taking a business loan, others rely on NBFCs.
In reality, both banks and NBFCs come with a number of pros and cons, and it depends on the borrower to select one. Some of the major differences between banks and NBFCs are-
Banks are very stringent when it comes to fulfilling eligibility criteria of the borrower. The business loan application is not approved, if the applicant is not able to meet the set criteria. NBFCs on the other hand, are not as stringent. Also, many of the NBFCs ask for minimal documentation, and once the required documents are submitted, even the loan is quickly processed.
The interest rate is one of the most important considerations when it comes to a business loan in India. While there are no major differences in interest rates offered by NBFCs and banks. NBFCs charge competitive rates by business turnover, and this can sometimes prove beneficial for the borrowers. However, be it an NBFC or a bank, the credibility of the borrower will play an important role while determining the interest rate.
When it comes to the distribution of network, banks usually have a widespread network, which makes it easier for borrowers from all the different parts of the country to take a business loan. So, the convenience of taking a loan and repaying it is higher with banks, as compared to NBFCs. However, there are now NBFCs in India which have a strong network in many major cities.
If a borrower needs some kind of help after taking a business loan, approaching the customer service department of the lender is the primary solution. This is another factor where banks score over NBFCs. While NBFCs too are spreading rapidly and are investing in providing better services to the borrowers, it is the banks that currently offer better post-delivery services.
As you can see, there are pros and cons of taking business loan from both NBFCs and banks, and it is the factors that are important for a borrower that can help them make a decision. If a business needs an emergency loan, it will be the quicker processing of NBFCs that can be helpful, and if a borrower needs better network and services, banks can be a great choice. Thus, make a list of your priorities and what you need before you decide between the two.