Why NBFCs are better than Banks for Business Loans?

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With the variety of possibilities that have been provided in recent years, the notion of moving forward with a business loan has significantly simplified. With the expanding range of possibilities on the market, obtaining a business loan in India is no longer an impossible task. The borrower now has the option of choosing an NBFC as their lending partner or applying for a business loan from a bank.

Speaking of NBFCs, they offer business loans with reasonable interest rates and simple terms and conditions, as well as a speedy application procedure. Banks are sometimes the sole sources of credit for many borrowers. However, the industry is now fully served by FinTech organisations like NBFCs and online lending firms. NBFCs offer credit facilities even though they are not banks.

Why do NBFCs excel over Banks?

NBFCs have a more flexible approach to business credit availability than banks do. They make it simple for clients to obtain rapid and efficient financing. One can easily apply for a business loan even with a poor credit score.

8 Reasons why NBFCs are better than Banks for Business loans

1. Quick Money Disbursal

You may consider this to be an extension of the previous point. As was already noted, there is a rigorous verification procedure and a lot of documentation involved in applying for business loans from banks. This can take a long time.

However, NBFCs adhere to considerably laxer lending conditions. They have loose qualifying requirements and need little documents. Their company loans are therefore provided fast. In an emergency, this enables company owners to obtain immediate finance.

2. Affordable Interest Rates

Most loan applicants are concerned with the interest charges placed on their loans. A heavier financial burden is produced by increased interest rates, which raise EMIs. NBFCs provide business loans at cheaper interest rates than conventional banks do. When company owners take out a loan from an NBFC, it signifies that they are under less pressure.

Because NBFC interest rates are determined by the Prime Lending Rate (PLR), which is not governed by the Reserve Bank of India, they are likely to be lower (RBI). As a result, they have more freedom and can change the interest rates on their business loans to draw in more clients.

The interest rates on business loans offered by NBFCs are quite low. Most of the time, they offer loans at par with or below what banks offer. Additionally, after the completion of six EMIs, several of the top NBFCs do not even levy prepayment costs. Due to everything said, borrowers are more likely to turn to NBFCs and find it to be much cheaper to obtain a business loan from NBFCs.

3. Simple Loan Procedure

In comparison to NBFCs, banks have stricter guidelines when it comes to approving business loans. Their approval and payment procedure is much quicker and easier. The procedure is also simpler overall, and the loan amount may be issued in as little as 3 working days*. Additionally, company owners that seek an immediate business loan typically obtain one from NBFCs.

4. Fewer Lending Rules and Regulations

NBFC lending standards and regulations are less stringent than those for banks because they fall under the Companies Act. This makes it simpler for borrowers to get loans. The less complicated loan processing has greatly pleased the borrowers.

5. Holistic Method of Credit Evaluation

NBFCs, as opposed to banks, don’t solely depend on a company owner’s credit or CIBIL score. They have a system in place for evaluating credit that assesses a borrower’s creditworthiness from all angles. The NBFCs evaluate the borrower’s creditworthiness based on factors such the borrower’s industry, years in the same line of work, bank statements, turnover, and ITRs submitted in the two to three years before.

6. NBFC Gives Consumers Priority

Although both banks and NBFCs operate in service-based sectors, NBFCs consistently outperform banks in terms of offering customer-focused services. Borrowers frequently worry about interest rates and other fees, and they frequently overlook the possibility of fluctuating interest rates due to market concerns. HFCs (Housing Finance Companies) are among the NBFCs that are steadily modernising to offer handheld client care. By utilising their accounts online, the borrowers may keep informed about loan information, payments, and additional fees.

7. Digital Method

Hard copies are hardly ever used in the modern financial digital world. Nowadays, the majority of NBFCs provide a fully online method that allows consumers to borrow money by simply uploading the necessary paperwork and receiving the funds directly into their accounts without leaving the house. However, banks still want the borrower’s actual presence, tangible copies, and extensive paperwork. The traditional banking procedures are no longer practical and are proving to be slower in a world propelled by digital technology.

8. Pre-Approved Loan

With pre-approved lending limits, a number of NBFCs in India offer business loans. Owners of businesses may withdraw money as needed from this loan cap. Here, it’s crucial to keep in mind that interest is only applied to the amount that the business owner uses, not to the whole loan limit that is accessible to him or her.

As a result of this agreement, company owners are able to save more money by keeping their EMIs low. A pre-approved loan limit also guarantees that firms never run out of money and save them the trouble of having to submit new business loan applications when they are in need.


According to statistics, NBFC credit in India increased to 10 to 13 percent during the course of a decade, from 2005 to 2015. The current COVID-19 crisis, which has produced financial hardship for the populace, has forced NBFCs credit share to increase and is anticipated to do so much more quickly. The best fintech solution must be chosen now that it has been determined that NBFCs may be a superior choice for obtaining loans. Consider factors other than interest rates and processing costs when evaluating the non-banking institutions from whom you are borrowing money. Before making a final choice, thoroughly evaluate your lender and check their reputation.