How are NBFCs Changing the Business Loan Landscape in India?

Business Loans

In the past few years, NBFC operations in India have seen a considerable shift. Because they make getting a loan relatively simple, businesses welcome NBFC loan providers. NBFCs are aware of the particular credit requirements and distinctive customer profiles. It offers them a competitive advantage over other lenders and enables them to innovate and tailor a product to a client’s demands.
MSMEs can get credit quickly from NBFCs. The change has aided the expansion of the Indian financial system in the NBFC industry. It is governed by the RBI and other governmental entities. Due to their higher-quality capital, technology-based strategy, and solid financial standing, NBFCs have found it simpler to enter the lending market. They reduce risk and close the loan supply gap for SMEs and other clients. NBFCs have effectively penetrated the core of India’s development with their creative programmes and low-cost structures. In this blog, we’ll discuss the types of loans, eligibility to secure a business loan and the improvement of business loans by NBFCs in India. 

Loans Offered by NBFC

Any company pursuing a project of great importance, such as building a factory, expanding into new markets, or executing infrastructure projects, may need additional funding to accomplish the enlarged objectives. Some of the business loans that can be applied by approaching NBFCs are:

Business Term Loan – You apply for business term loans once you are quite confident of when the business will begin paying you back.

SME loans – These loans are the ones given to small and medium-sized businesses. The business turnover and employee strength are taken into consideration while approving these loans.

Loans to MSME – These are loans for micro, small, and medium-sized businesses. These companies often employ not more than 20 employees and run from homes or rented facilities.

Machinery loans – For purchasing any machinery or equipment, machinery loans are necessary. The terms of these loans are determined after taking into account the depreciation of the machine.

Overdraft loans – These loans are typically unsecured. The NBFCs provide overdraft loans to borrowers who need money for cash expenses or other costs associated with everyday operations, just like banks do with their OD facility.

Loans for working capital – The money required for covering operational costs, purchasing raw materials, employing logistical services, etc., is known as working capital. The capital required for it is financed to lessen the immediate financial load of expenses with the intention of keeping the firm working. When a business decides to expand, working capital is used to secure the funding necessary to execute the strategy.

Features of Indian NBFC Loan Finance

The need for a business loan from an NBFC emerges when the existing banking institutions are unable to cater for the needs of expanding small-scale firms. The below details describe how the prospect for business loans from NBFCs in India is improving the scenario for firms.

Relaxed lending norms

Many micro, small, and medium-sized businesses (MSMEs) have developed over time in the Indian economy. At least a third of India’s GDP[1] comes from these very small-scale firms. Special lending standards are required for these small firms. Applying for a loan at a bank takes a lot of time, documentation, and some collateral pledging.

On the other hand, NBFCs have the objective of lending money to small companies that have comparatively relaxed norms. NBFCs are becoming MSMEs’ preferred choice because they quickly meet their credit requirements.

In some cases, businesses can get a business loan from an NBFC without even pledging any security. Companies that provide NBFC loans have made the funding procedure easier than before.

Pre-Approved Loan Limit

When businesses borrow money from an NBFC loan company, they are given a pre-approved loan limit. Businesses are free to withdraw money anytime they need it. They are not required to ask financial institutions for additional permissions each time they need money.

Additionally, firms only have to pay interest on the portion of the permitted loan limit that they actually use. Banks, on the other hand, demand full payment from businesses. Because of the cheaper monthly EMI, obtaining a business loan from an NBFC is better for firms.

Flexi-Business Loan Options

At the end of the loan term, borrowers of flexi-interest-only business loans have the choice to repay the principal. Businesses can further reduce the monthly EMI amount by simply including the interest component in their payments. Hence, NBFCs are altering the prospects for business loans in India and satisfying the lending needs of Indian firms in the most convenient way feasible.

NBFCs are tech-savvy 

NBFCs are a great example of how new technologies and innovations are changing the financial sector in India. To offer a smooth customer experience, the majority of NBFCs have embraced the concept of digitalization. The days of handling hard copies and maintaining tangible records are long gone. Currently, business loans from NBFCs can be obtained without any paperwork.

Business owners can apply for loans on the NBFC’s website or by downloading an app to their smartphone from the convenience of their offices or homes. The loan amount is transferred to your bank account within 24 hours of approval, and all required documentation can be uploaded online.

Yet, the majority of banks still take the traditional route, which calls for the borrower to deliver a paper copy of the paperwork and personally check the branch for confirmation. Again, this procedure is time-consuming, inconvenient, and largely ineffective.

Lower Interest Rates

High lending rates are deterring, especially for new and small firms. Also, higher interest rates translate into greater simple monthly payments (EMI). In general, NBFC interest rates are lower than those of traditional banks. Small- to medium-sized business owners favour NBFCs over banks for this reason, among others.

Yet have you ever questioned why NBFCs levy such cheap interest rates? Interest rates are low because they are determined by the Prime Lending Rate (PLR), which is unregulated by the RBI. As a result, NBFCs can offer business loans at lower interest rates than banks. Also, NBFCs offer a more appealing alternative to conventional banks because of their cheaper loan processing fees.

Essential documents for a business loan

  • The applicant must have a properly filled-out Business Loan Application form with photos attached.
  • Identification documents such as the PAN card, voter ID, driving licence, Aadhaar card, and passport are acceptable.
  • You can use an Aadhar card, a copy of a ration card, a voter identification card, a driving licence, a passport, electricity bills, or gas connection bills as address proof.
  • Statement of your bank accounts for the last six months
  • Income statements for the previous three months and Form 16 
  • ITR for the past three years.

Application Procedures for Business Loans from NBFCs

The stages involved in getting business loans from NBFCs are as follows:

  • Learn about the various NBFCs and their lending policies. If they accept online applications, try them. You can also visit the NBFCs’ offices or request a meeting with one of their representatives to discuss the loan plans.
  • After choosing an NBFC, they will help you with the “documents required” list and begin outlining their eligibility conditions.
  • Complete an online loan application and attach any required documents.
  • NBFCs verify the information given on the application form. People can also ask the borrower for a private meeting to discuss business objectives, the plan’s details, etc.
  • The loan is granted, and the sanctioning process starts after the NBFC is pleased. The loan terms are agreed upon if the loan is to be paid back in instalments.
  • The NBFCs deposit the money in the borrower’s bank account after conducting the necessary verification if the entire loan is released at once.
  • Technology-advanced solutions have made loan sanctioning and approval comparatively fast. Early loan approval from NBFCs allows businesses to move on with growth plans or other measures without worrying about meeting their financial obligations.


New-age non-banking financial companies (NBFCs) are quickly changing the Indian lending ecosystem by bringing fresh models that combine the most significant fintech characteristics and standard credit features, enriching enterprise lending procedures and business loan requirements. Furthermore, NBFCs have a robust technology infrastructure that allows them to provide agility to the entire credit cycle process, allowing end-to-end operations from application to disbursal to be completed in a matter of days.

Also Read: Things Your Business Loan Application Must Include

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