The last few years have viewed a significant transformation in the way that non-banking financial companies (NBFC) function in India. Businesses have welcomed NBFC loan companies with open arms as they make the process of acquiring loans relatively hassle-free. Apart from contributing to the financial system, NBFCs also play their role in accelerating the infrastructural development as well as generating employment. A recent Financial Stability Report from RBI stated that NBFCs perform better than banks and are increasingly contributing more and more to the Indian economic growth.
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NBFCs stand for non-banking finance companies. Business prefers NBFCs for availing funds because of the flexible loan terms and less stringent eligibility criteria. Also, because of the different kinds of loans offered by NBFCs, it allows business owners to choose a loan fitting their needs and purpose.
Here is a quick guide telling you about the must-knows while taking a business loan from NBFC companies. It can help you find the right lender and get all approvals in time, allowing you to focus on your business plans.
Where the existing banking institutions fail to cater to the need of growing small-scale enterprises, the need for a business loan from NBFC arises. The given points explain how the prospect of business loans from NBFC in India is changing the situation of businesses for the better
1. Relaxed Lending Norms: Over the years, several micro, small, and medium enterprises (MSMEs) have emerged in the Indian economy. These somewhat small scale businesses contribute at least a third to the Indian GDP. Such small-scale businesses require special lending norms. Applying for a loan in a bank involves investing a lot of time, a lot of paperwork and some collateral pledge. NBFCs, on the other hand, serve the purpose of lending money to small-scale businesses with relatively relaxed norms. NBFCs have become the go-to option for MSMEs as they fulfill their loan requirements readily. In some instances, companies are not even required to pledge collateral to obtain a business loan from NBFC. NBFC loan companies have made the whole process of getting funds more relaxed than ever.
2. Pre-Approved Loan Limit: Businesses enjoy a pre-approved loan limit upon taking a loan from an NBFC loan company. Companies can withdraw funds as per their requirement whenever they want. They do not have to request for multiple approvals from financing institutions every time they require funds.
Moreover, businesses only have to pay the interest for the amount that they use out of the approved loan limit. Banks, on the other hand, require companies to pay for the whole amount. Therefore, procuring a business loan from NBFC is more beneficial to businesses as they have to pay a lower monthly EMI.
3. Flexi-Business Loan Options: Flexi interest-only business loans provide the option of paying the principal amount at the end of the loan period. Companies only have to pay for the interest amount in the monthly EMIs, therefore, further decreasing the monthly EMI amount.
NBFCs are, thus, changing the prospect of business loans in India and are fulfilling the loan requirements of Indian businesses in the most comfortable manner possible.
Though not very stringent, NBFCs do have some eligibility criteria to access a borrower's application. These criteria are as follows:
The business should show a positive trend in its turnover
Minimum annual income as expected by the loan company should be shown and supported with proofs
The company's time in business – to check stability and credibility
Balance sheet audited by CA
The age of the applicant should be between 21-65 years. This criteria may vary from lender to lender.
So, you need to keep the business documents well-maintained and timely audited to become eligible for loans for business purposes from NBFCs.
For speedier approval, you must keep the following documents ready and updated. Though these are not mandatorily required for the loan application but can be asked at any point in time.
Income tax returns
KYC verification documents of the company
KYC documents of business owners
Business continuity proof
A copy of the filled application form
Keeping all these documents handy, updated and verified, helps a business owner to get loan from NBFCs quickly.When approaching any NBFC, you can expect them to ask for these documents right at the start or during the approval process. So to avoid any delay.
Any business undertaking a project of high importance, like infrastructural projects, setting a factory, or moving to new markets may require additional money to meet the extended objectives. Some of the business loans you can apply for by approaching NBFCs are as follows:
Business term loan
When you are quite confident about the time business will start paying back, you apply for business term loans.
These are the loans that are extended to small and medium-sized enterprises. These loans are approved, keeping the business turnover and worker strength in mind.
These are the loans for micro, small and medium enterprises. These businesses are mostly operating from homes or rented spaces and do not have a workforce going beyond 20 people.
These loans are required to buy any equipment or machinery. The machine's depreciation is considered while deciding the terms of these loans.
Mostly, these are unsecured loans. Just like banks offering OD facility, the NBFCs offer overdraft loans to the borrowers who require money for cash expenses or other daily operations' expenses.
Working capital Loans
Working capital is the money needed to carry out operational expenses, buying raw materials, hiring logistics services, etc. The aim is to keep the business working, and the capital needed for it is financed to ease the immediate burden of expenses. Sometimes, when the businesses are putting an expansion plan in action, the capital needed to carry out this plan can be arranged by taking working capital loans.
The process of availing business loans from NBFCs involves the following steps:
Enquire about various NBFCs and their lending plans. If they accept online applications, give it a shot. Else, you can visit the NBFCs' offices or ask their representatives to meet you to explain to you the loan plans.
Once you have picked your NBFC, they will help you with the 'required documents' list and share their eligibility criteria.
Next, fill a loan application form and attach all required documents.
NBFCs verify the information furnished in the application form. They may also ask the borrower to meet for a one-to-one meeting regarding business objectives, plan explanation, etc.
Once NBFCs are satisfied, they approve the loan and start the sanctioning process. If the loan is to be disbursed in parts, the terms for the same are agreed upon.
In case of full loan disbursement in one go, the NBFCs park the fund in the borrower's bank account after due verification.
Due to technically advanced solutions, the process of loan approval and sanctioning has become quite fast these days. NBFCs issue business loans as soon as possible, allowing businesses to execute their starting or expansion plans without worrying about the financial requirements.
There are a few charges that the business owner or borrower needs to bear to get the business loan from NBFCs. These charges may comprise the following:
Loan processing fee
The variable fee, including stamp duty, amortization fee, cheque swap fee, and others as suggested by NBFCs.
Selecting NBFCs for taking a business loan can be a tricky process. Listed here are some pointers to consider to pick NBFCs for a business loan:
Find about the pre-approved business loan limit
If their pre-approved loan limit matches your requirement, that NBFC is meant for you.
Focus on customer service
The best financing company will be one that has proactive customer service enablers. It can help you settle all your doubts and provide you timely updates regarding the application processing.
Easy loan approval requirements:
The less the requirements, the more hassle-free the loan process becomes.
Lots of financing options
If the NBFC is dealing in numerous business loan options, you have the flexibility of choice. Also, it can match you more quickly to the type of loan available.
Cheap interest rates
Obviously, the company that offers cheap business loans can help you keep the cost of capital low and manageable.
Take care of all the points mentioned in this guide. These are well-researched pointers that cover the working of almost all NBFCs functional in business loan space.
Applying is quick and easy and typically takes less than 10 minutes. We ask for basic information about you and your business. Securely connect your bank information so we can assess your business without long forms, waiting in line or having to dig up old paperwork. Your association with business services who we have partnered with helps get you more fitting loans.
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The moratorium on payment of Loan EMIs as per the regulatory guidelines has ended on 31st August, 2020. Starting 1st September,2020 we request customers to ensure timely repayment of loan EMI as per the repayment schedule. Any amount collected before 5th Aug will be considered as part payment and the amount collected post 5th Aug will be adjusted against Sep'20 EMI. For more details, click here