Personal loan (PL) has improved significantly as a result of the NBFC sector’s remarkable growth in India during recent years. The market share of NBFCs in PLs increased from 22.68% in March 2018 to 44.92% in March 2020, according to the credit information bureau. The market share was 42.16% in August 2020.
Unsecured loans from non-banks are anticipated to grow at a CAGR of 25% in FY 2020–21, according to RISIL.
With the market’s increasing range of options, acquiring a business loan in India is no longer an impossibility. The borrower can now select an NBFC as their lending partner or seek for a business loan from a bank.
When it comes to NBFCs, they provide company loans with fair interest rates, straightforward terms and conditions, and a quick application process. For many debtors, banks are their only source of credit. However, FinTech organisations such as NBFCs and internet lending corporations are now completely serving the market. Despite the fact that they are not banks, NBFCs provide credit.
Top 5 reasons promoting the expansion of NBFCs in India
- Better Financing Strategies
NBFCs make better financial solutions available to customers by utilising financial technology. Peer-to-peer lending websites, for instance, connect the lenders and borrowers for a modest charge. In this kind of business, the borrower is given the opportunity to use the funds for their requirements while the lenders benefit from interest on the money they gave.
- Automated Risk Analysis
The underwriting process has been automated by NBFCs with the use of technology, accelerating the time it takes to process individual applications. Additionally, by reducing operational expenses, NBFCs are able to give their clients competitive interest rates.
- Rapid and simple Loan Approval and Disbursement
In a matter of minutes, NBFCs can authorise a loan. Getting a loan approved more quickly means getting money sooner.
- Efficient use of Data
NBFCs don’t just base their lending choices on a borrower’s credit score. When examining the loan application, a variety of factors are taken into account.
- Special Offers
To accommodate the various financial needs of clients, NBFCs have expanded their lending offers. The lending markets have had a robust increase thanks to loans for debt consolidation, personal loans, weddings, consumer durables, home improvements, vehicles, two-wheelers, etc.
More Borrowers are Presented with Loans
Many bank-excluded consumers have found that NBFCs can satisfy their wide-ranging financial needs. People, especially company owners, were able to obtain loans thanks to their innovative lending concept, which was not always possible with conventional banks.
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.