banner banner

Stay Up-to-Date with Our Blogs & Articles

The texts on this website have been translated using an automated translation tool and its accuracy cannot be guaranteed. We recommend referring to the English version of the content for the most precise information. In the event of any disputes or inconsistencies, the contents in the English language shall be considered final and binding. IIFL HFL disclaims any liability or responsibility in this matter.
Go Back to Main blog page

Comparison: Business Loans from NBFCs vs.Other

By IIFL Home Loans | Published On May 28 2024 11:22 AM 1 min read 22 views 6190 Likes
Business Loan

Starting or scaling up a business often requires a financial boost. Business loans can be the fuel that propels your venture forward, helping you invest in equipment, manage working capital, or seize new opportunities. However, with numerous lenders offering various small business loans, navigating the choices can be overwhelming.

Traditionally, banks have been the go-to source for business loans. However, in recent years, Non-Banking Financial Companies (NBFCs) have emerged as a significant player in the lending landscape. Understanding the distinct features of NBFCs and other lenders empowers you to make informed decisions and secure the financing that best suits your business needs.

What is NBFC?

NBFCs are financial institutions that provide various credit products, including business loans . Unlike banks, they don't take deposits from the public. NBFCs often cater to a wider range of borrowers, including startups and smaller businesses, with potentially more flexible eligibility requirements and faster processing times.

Type of Business Loans offered

NBFCs offer a diverse range of business loan products to cater to specific needs:

  • Term Loans: These are lump sum loans repaid over a fixed term with regular installments. They are suitable for purchasing equipment, expanding your inventory, or funding renovations.

  • Working Capital Loans: These loans bridge the gap between your day-to-day operational expenses and incoming revenue. They are ideal for managing cash flow fluctuations or seasonal demands.

  • Line of Credit: Provides access to a pre-approved credit limit that you can draw upon as needed, offering flexibility for unforeseen expenses.

  • Invoice Discounting: Receive immediate funds against outstanding customer invoices — improving your cash flow.

Understanding Business Loans from Other Lenders

Traditional banks have a long-standing reputation for business loans. They offer competitive interest rates but can have stricter eligibility criteria, requiring a strong credit history and established business operations.

Online lenders have emerged as a relatively new alternative. Their application processes can be faster and more streamlined, potentially making them a good option for startups or businesses with limited credit history. The table below shows the basic difference between NBFC and banks.

Characteristics

Banks

NBFCs

Governed & Incorporated

RBI – Banking Act

Companies Act

Services Offered

All Loans

Property & Business Loans

Loan Sanctioning Process

Rigorous

Easy and Quick

Base Interest Rate

Profit Margin

RPLR – Retail Prime Lending Rate

Interest Rate Perks to Existing Creditors

No room for Financial Gain

Elevated opportunity for existing & new borrowers

Advance Payment via NEFT

Low Remittance Charge

Cheque Payment are preferred to process ECS

Overdraft Facility

Available in prominent banks like SBI

Not Available

Types of Business Loans Offered by Other Lenders

Traditional banks and online lenders offer similar loan products to NBFCs, including:

  • Term loans

  • Working capital loans

  • Government-backed loans with specific eligibility requirements

  • Equipment financing loans

Comparison of Interest Rates

Interest rates on NBFC loans can be slightly higher compared to traditional banks. However, this can be offset by the potential for faster approvals and lower processing fees.

Interest rates from traditional banks are generally competitive, but securing a loan may be subject to a more rigorous evaluation. Online lenders offer variable interest rates, which can be beneficial if your credit score is strong.

Comparison of Eligibility Criteria

NBFC business loans might have less stringent eligibility requirements than banks. They may consider factors like your business plan, future projections, and potential for growth alongside your credit score.

Traditional banks usually require a strong credit score , established business financials, and collateral to secure a loan. Online lenders might be more flexible, focusing on your business potential and future cash flow.

Comparison of Loan Processing Time and Disbursement

NBFCs are known for their fast loan processing durations, with approvals potentially secured within days or a few weeks. This can be advantageous for businesses requiring immediate access to funds.

Traditional banks can have a more extensive loan application process, potentially taking several weeks or even months for approval. Online lenders can offer a middle ground, with processing times ranging from a few days to several weeks.

Banks vs. NBFC - Additional Features and Benefits

Flexibility in Loan Terms from NBFCs

NBFCs may offer more flexibility in loan terms compared to traditional banks. This can include:

  • Shorter loan repayment periods to suit your cash flow cycle.

  • Customized repayment schedules with options for balloon payments or seasonal adjustments.

  • Easier top-ups on existing loans to address unforeseen needs.

Additional Services Offered by Other Lenders

Traditional banks often provide a wider range of financial services beyond just loans. This can include business checking accounts, merchant services, or investment products.

Online lenders might offer streamlined online account management tools and faster loan servicing compared to traditional banks.

Wrapping Up

Choosing the right loan partner depends on your specific business needs and financial situation. There are various NBFC and bank differences, but regardless of your chosen lender, maintaining a good credit score and having a sound business plan will strengthen your loan application.

IIFL Home Loans understands the diverse needs of businesses. Explore our blog for more insights on business loans, financial management, and navigating the real estate landscape. We also offer a variety of financial products and services to support your entrepreneurial journey. Consider consulting with an IIFL Home Loan expert to discuss your specific requirements and explore loan options that best suit your business goals.

FAQs

Q1: What documents are typically required for a business loan application?

Ans:  

The required documents may vary depending on the lender, but generally include business registration documents, financial statements, and tax returns.

Q2: What can I do to improve my chances of securing a business loan?

Ans:  

Maintain a good credit score , prepare a well-defined business plan, and have strong financial projections in place.

Q3: Can I apply for business loans from multiple lenders?

Ans:  

Yes, you can apply to multiple lenders to compare rates and terms. However, be mindful of the impact of hard inquiries on your credit score.

Q4: What are the different types of collateral that can be used to secure a business loan?

Ans:  

The type of collateral accepted depends on the lender and loan product. Common options include real estate, inventory, machinery, or even accounts receivable. Using collateral can potentially qualify you for a lower interest rate.

Tags

apply loan

Quick and Hassle Free Loan Processing

Latest Blogs

green ad
Prelude to Building Green - IIFL Home Loan's Guide to Sustainable Affordable Housing
Download report

Disclaimer: The information contained in this post is for general information purposes only. IIFL Home Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment, etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness, or of the results, etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Given the changing nature of laws, rules, and regulations, there may be delays, omissions, or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan product specifications and information that may be stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan.