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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.




Governed & Incorporated

RBI – Banking Act

Companies Act

Services Offered

All Loans

Property & Business Loans

Loan Sanctioning Process


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.


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


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?


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?


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?


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.


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