Why Get Business Loans from NBFCs vs Traditional Banks

Are you a small or medium enterprise (SME) owner looking for financing to grow your business? While traditional banks may be the first option that comes to mind, NBFCs (Non-Banking Financial Companies) are emerging as an attractive alternative for SMEs seeking business loans. In this article, we’ll explore the benefits of getting a loan for your business from an NBFC compared to a traditional bank.

Advantages of Getting a Business Loan from an NBFC

Flexible Eligibility Criteria

One of the key advantages of NBFCs is their flexible criteria for business loan eligibility. Unlike banks that have strict lending requirements such as a high credit score (750+), 3-5 years in the market, and a minimum ₹1 crore in annual revenue, NBFCs take a more accommodating approach. This flexibility allows a wider range of SMEs, including younger ventures and those with lower revenues, to access the funding they need to grow.

When you apply with an NBFC, you can expect:

• Lower minimum credit score requirements
• Shorter business vintage (1-2 years)
• Reduced annual revenue thresholds
• Consideration of alternative data points for creditworthiness assessment

This adaptability makes NBFCs well-suited to meet the unique financing needs of SMEs that may not qualify for traditional bank loans.

Faster Loan Approval and Disbursal

NBFCs have streamlined processes compared to banks’ lengthy verifications, such as:

• Simplified documentation requirements
• Digital application and submission processes
• Advanced credit assessment models for quicker decisions
• Dedicated relationship managers for personalized support

Collateral-Free Loan Options

Many SMEs, especially those in the service sector, lack the fixed assets required to secure a traditional bank loan. NBFCs understand this challenge and offer unsecured loans without requiring you to pledge any collateral. This opens up financing options for a broader set of enterprises that would otherwise struggle to access the formal credit market.

When you apply for a business loan with an NBFC, you can benefit from the following:

• No requirement to mortgage property or equipment
• Funding based on your cash flows and growth potential
• Faster processing times due to no collateral valuation
• Reduced risk of losing assets in case of default

By providing collateral-free MSME business loans, NBFCs empower entrepreneurs to access the capital they need without putting their assets on the line.

Specialized Industry Expertise

NBFCs often specialize in specific industry verticals, developing tailored credit assessment models for those sectors.

For example, an NBFC that focuses on lending to manufacturers will have a better understanding of:

• Machinery and equipment financing needs
• Inventory management and valuation
• Typical cash conversion cycles in the industry
• Supplier and buyer relationships

Flexible Repayment Terms

NBFCs tailor flexible repayment options to match your business’s cash flow patterns. This flexibility is particularly valuable for SMEs with seasonal or fluctuating revenues, as it allows them to align their loan repayments with their income streams.

Some of the repayment options include:

• Step-up repayment plans with lower initial EMIs
• Bullet repayments aligned with cash flow spikes (e.g., post-harvest for agri-businesses)
• Customised repayment frequency (monthly, quarterly or semi-annually)
• Moratorium periods to defer repayments during venture expansion or transition

Loans for Diverse Business Needs

Whether you need quick business loans for urgent requirements or longer-term financing for expansion projects, NBFCs have you covered. They allow:

• Working capital financing to manage day-to-day expenses
• Equipment and machinery purchases to expand production capacity
• Inventory financing to stock up before peak sales periods
• Technology upgrades to improve efficiency and competitiveness
• Expansion or renovation of premises
• Debt consolidation to streamline multiple loans into a single EMI
• Acquisition financing to buy out competitors or expand into new markets

Types of Loans Offered by NBFCs

1. Working Capital Loans

These loans help businesses manage their daily operations, such as paying suppliers, managing overheads and maintaining inventory.

2. Term Loans

These are long-term loans that you can use for expansion, purchasing new machinery or other significant investments.

3. Collateral-Free Business Loans

Also known as unsecured business loans, these loans do not require you to pledge any asset as collateral. This is especially beneficial for small businesses that lack significant assets.

4. MSME Loans

NBFCs are highly supportive of small businesses and offer specialised loans, such as MSME loans. Whether you are an established MSME or a new business, NBFCs provide you with the funds needed to grow.

Why Choose an NBFC Over a Traditional Bank?

1. Lower Documentation Requirements

NBFCs generally have fewer documentation requirements compared to banks. While banks often require detailed financial records, tax filings and other documents, NBFCs have simplified the process. The documents required for business loans from NBFCs are usually minimal, often including just the basics like identity proof, registration proof and bank statements.

2. Competitive Interest Rates

NBFCs offer competitive interest rates and customise them based on your business’s financial standing. The business loan interest rate from NBFCs is often flexible, and you can easily calculate your EMIs using a business loan calculator or business loan EMI calculator provided by the NBFC.

3. Tailored Loans for Women Entrepreneurs

Many NBFCs offer specialised business loans for women, designed to support female entrepreneurs. These loans often come with reduced interest rates and flexible repayment options.

Trusted Financial Services: Bajaj Finserv Direct and FlexiLoans

When exploring financial products or applying for business loans, choosing reliable providers is crucial. Bajaj Finserv Direct Limited, a subsidiary of Bajaj Finserv, stands out as one of India’s fastest-growing fintech companies.

About Bajaj Finserv Direct Limited:

Bajaj Finserv Direct operates through two main branches:

• Bajaj Markets: A financial marketplace offering a variety of products, including loans, cards, insurance and investments. It serves as “India ka Financial Supermarket,” partnering with trusted financial brands.
• Bajaj Technology Services: A fintech service provider delivering digital technology solutions such as custom and enterprise applications, data analytics, Gen AI, cloud services, and digital agency offerings.

FlexiLoans: Simplifying Your Business Loan Experience

FlexiLoans is an excellent choice for collateral-free and quick business loans. With an easy online application process, FlexiLoans allows you to apply with minimal hassle.

FlexiLoans offers instant loan approval, minimal documentation, and flexible repayment terms, aiming to streamline the loan process for businesses across India. For more information, visit the FlexiLoans website.

Conclusion

NBFCs offer several compelling benefits over traditional banks when securing business loans for SMEs. From flexible eligibility criteria and faster loan disbursal to collateral-free options and industry-specific expertise, NBFCs are well-positioned to meet the diverse financing needs of small and medium enterprises.

By partnering with an NBFC for your business loan requirements, you can access the capital you need to fuel your growth while benefiting from a more personalized and flexible lending experience. Whether you need a business loan for expansion, working capital, or any other purpose, NBFCs can provide the tailored financing solutions your business needs to thrive.

FAQs

1. How can I apply for an NBFC business loan online?
   To apply for a business loan online, visit the lender’s website and fill out the digital application form. Upload the required documents, such as your business’s financial statements, KYC documents and ownership proofs. The NBFC will review your application and provide a decision within a few days.
2. What are the eligibility criteria for an NBFC loan?
   The eligibility criteria for NBFC loans are typically more flexible than those of traditional banks. Most NBFCs require a minimum operational history of 1-2 years, an annual revenue of ₹50 lakh or more, and a credit score of 650+. However, these criteria can vary depending on the lender and the specific loan product.
3. Can I get a business loan from an NBFC without collateral?
   Yes, many NBFCs offer unsecured business loans that do not require any collateral to be pledged. NBFCs provide these loans based on your business’s cash flows, growth potential and creditworthiness. Collateral-free loans are particularly suitable for service-based businesses that may not have significant fixed assets.
4. How can I calculate the EMI for an NBFC business loan?
   You can use an online business loan EMI calculator to estimate your monthly repayments for an NBFC loan. Simply input the loan amount, interest rate and repayment tenure, and the calculator will display your EMI amount. Keep in mind that the actual EMI may vary based on the specific terms and conditions of your loan agreement.
5. What documents do I need to provide for an NBFC loan application?
   The documents required typically include:
   • KYC documents of the business and its owners / directors
   • Proof of business ownership and address
   • Bank statements for the past 6-12 months
   • Financial statements (balance sheet / profit and loss account)
   • GST returns (if applicable)
   • Income tax returns of the business and its owners / directorsThe specific documentation requirements may vary depending on the NBFC and the loan product, so it’s best to check with the lender for a detailed list.