Banks and NBFCs both play an important part in the development of the nation by offering financial services and by bringing more people into the formal financial channel by offering services to all sections of the society.
While Banks and NBFCs both might seem to offer similar services to consumers, a major difference is that an NBFC cannot issue cheques and demand drafts wherever a Bank can offer a full spectrum of financial services including issuing cheques and demand drafts. Another major difference is that NBFCs are not involved in payment mechanisms which are handled by Banks and under the regulation of the Reserve Bank of India.
However, as Banks alone could not cater to the growing need for funds from the businesses across the country and especially from the small businesses, NBFCs fulfil a crucial gap by offering these business loans. Here are some top factors which one needs to consider before deciding to opt for an online business loan in India from Banks or NBFCs, the same applies to offline business loans as well.
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Product Offerings
Banks are regulated by the Reserve Bank of India and thus, the product offerings are almost identical and heavily regulated. Banks are now mandated to link the lending rates to the Repo rate or external lending rates. NBFCs, on the other hand, do the lending based on their prime lending rates and are flexible to offer innovative products that suit various business needs. Some NBFCs offer customised business loans specifically to suit various industries. For instance, a travel agent loan might calculate their creditworthiness based on their transactions with the online travel aggregators and similarly, the restaurants can get the creditworthiness assessed basis their transactions with the food delivery apps.
Speed of Disbursals
A lot of traditional banks are still processed bound and take a lot of time to approve individual loans, whereas every file goes through multiple departments and credit checks which increases the time. NBFCs, on the other hand, are often more flexible in offering business loans with the use of technology. A lot of NBFCs are using machine learning algorithms to evaluate creditworthiness and offer online business loans in India with a minimal human intervention that reduces the processing time of business loans.
Eligibility Criteria
Often people quip that Banks only offer loans to businesses that already have the money, and the statement was virtually true for a lot of years and hence, a lot of small businesses that needed funds to grow remained out of the ambit of formal lending channels and intact got stuck into the clutches of local money lenders who charged an astronomical amount for business loans as people were unable to check multiple bank offers for business loans. NBFCs launched specialised products by assessing creditworthiness using advanced algorithms which eventually included many more small businesses in the financial lending by NBFCs. NBFCs thus could offer loans to businesses with a relatively lower credit score by linking their creditworthiness on the business models.
Documentation
Tied to regulations and boundaloansjries Banks demand multiple documentations from small business which not only consumes a lot of time but also keeps many small businesses out of the formal lending channels as they are unable to furnish a long list of documents like income tax returns, property documents and several others. Several NBFCs by the virtue of offering unique products that are linked to business models require minimal documentation. For instance, a restaurant business can get their online business loan in India sanctioned on the basis of their food delivery transactions with the online food delivery apps like those of Zomato and Swiggy. This enables the NBFCs to value without asking multiple documents and approve basis the digital trace of business transactions.
Conclusion
Going for a business loan is a big decision for the business and especially for a small business thus, one should check for the right fit products by comparing multiple bank offers and NBFC offers. One can simply visit a fintech platform of LoansJagat and compare the online business loan in India from multiple Banks and NBFCs and get the best-fit business loan for their business.