Banks or NBFCs? What Should be Your Preferred Choice for a Small Business Loan?

April 3, 2023
Updated on

If you are a small business entrepreneur looking for formal credit, you have two options.

To take a small business loan online from a Non-banking Financial Company (NBFCs) or from a bank. However, since getting a bank loan can be difficult and cumbersome for small businesses, many NBFCs are there to support them, making it easier for micro-small-and-medium enterprises (MSMEs) to obtain a small business loan online.

Before taking a loan, it is vital to understand the two financial intermediaries offering them – NBFCs and banks.

What are NBFCs?

  • NBFCs offer banking services without the need for a banking license. 
  • NBFCs are privately held financial institutions that the RBI and other government agencies supervise.
  • To provide services similar to banks, NBFCs must abide by the RBI regulations
  • NBFCs cannot accept demand deposits, provide savings accounts, issue cheques drawn on itself, or other functions of the bank except lend capital. 
  • NBFCs play a crucial role in meeting the credit demands of small businesses that are unmet by traditional banks. 

What are Banks?

  • A bank is a financial institution that holds a banking license and can accept deposits as well as provide loans.
  • There are several types of scheduled banks, such as central and co-operative banks. And under unscheduled we have Commercial, Small Finance, Payments and other types of banks. 
  • Banks are registered under the Banking Regulation Act of  1949, and are regulated by the RBI.

Grow your MSME with collateral-free business loans

How NBFCs have the edge over Banks for giving a Small Business Loan online?

Faster processing

Borrowing money from a bank usually entails a lot of paperwork and a lengthy loan application process. Most NBFCs, on the other hand, allow for easy application, approval and disbursement of funds due to their minimal documentation requirements. With tech-enabled NBFCs like Kinara Capital, you will not have to go through any long screening procedures to avail of a small business loan online, and will therefore be able to get funds sooner.

Documentation requirement

The document requirements for NBFCs can be minimal and flexible. Whereas a bank requires much more proof and documents.

Looking beyond credit scores

ManyNBFCs look beyond the credit scores and have a less stringent requirement. Kinara Capital for instance uses technology and data to assess loan applications beyond just the credit score.

Quick loan disbursement

With NBFCs, you can get a loan much quicker than from a bank. With a bank, the loan processing itself can take weeks/months, let alone the loan disbursement.

Both banks and NBFCs have their own sets of pros and cons. But if you are a small company seeking a small business loan online, then choosing an NBFC would be a better option. This is because the loan products offered by NBFCs are better customized to suit the loan requirements of small businesses. Moreover, less paperwork, limited documentation, and no property collateral requirement are some added advantages that you get with Kinara Capital. You can even get started with an eligibility check that only takes 1 minute!

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