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NBFC Business Loans

Taking business loans from public sector banks like SBI, Canara Bank, PNB, etc., and private sector banks like HDFC, Axis, ICICI, etc., is common. But if someone from Bajaj Finserv, Tata Capital, Fullerton, Lendingkart, etc., approaches you to offer a business loan, then you’re getting the loan offer from an NBFC, also called a Non-Banking Financial Company. This page takes you through What an NBFC is, what kind of business loans it offers, how NBFC business loans differ from regular loans, and other relevant information that would help you decide whether to go for NBFC business loans.

NBFC Business Loan

What is an NBFC?

Also known as non-banking financial institutions (NBFIs), NBFCs are financial institutions that provide bank-like financial products and services like loans, advances, credit cards, etc. but do not have a banking license. This means NBFCs are not allowed to take demand deposits like savings accounts, fixed deposits, etc., or issue cheques drawn in their favour from the general public. Nonetheless, some NBFCs can accept deposits subject to regulatory restrictions and require specific approvals from the Reserve Bank of India (RBI).

NBFCs are registered under the Companies Act and regulated by the Reserve Bank of India under the RBI Act, 1934. Except for the deposits, NBFCs are allowed to conduct various financial activities such as leasing, investment, insurance, chit-fund business,  hire-purchase finance, and other similar activities. NBFCs play a key role in providing credit to small and medium-sized businesses (SMBs) and self-employed individuals who may not have access to credit from traditional banks.

An NBFC business loan is a type of loan provided by non-banking financial companies to businesses for their working capital, expansion, or other financial requirements. These loans are typically easier to obtain than bank loans and offer more flexibility in terms of loan amount and repayment options. NBFC business loans can be secured or unsecured, and the interest rates and repayment periods can vary depending on the lender and the borrower’s creditworthiness.

Different Business Loans Offered by NBFCs

NBFCs offer a wide range of business loans to cater to the various financial needs of small and medium businesses in India. Some of the common business loans offered by NBFCs are:

  • Working Capital Loans: These are short-term loans designed to help businesses manage their day-to-day expenses, such as paying salaries, buying inventory, and paying utility bills.
  • Term Loans: These are long-term loans used to fund the purchase of assets such as machinery, land, or buildings. These loans are typically repaid over a period of 5-10 years.
  • Business Line of Credit: This type of loan allows businesses to access a pre-approved credit limit, which they can draw down as and when needed. Interest is only charged on the amount of credit that is used.
  • Equipment Financing Loans: This is a type of loan that is used to finance the purchase of equipment, such as computers, machinery, or vehicles. The equipment is usually used as collateral for the loan.
  • Invoice Financing: This is a type of loan where businesses can borrow money against their outstanding invoices. The loan amount is typically a percentage of the total value of the outstanding invoices.
  • Merchant cash advance: This type of loan provides businesses with an upfront sum of cash in exchange for a percentage of future credit and debit card sales. The repayment amount is deducted from the business’s daily sales until the loan is repaid in full.
  • Unsecured Business Loans: These are not secured by any collateral, such as property or equipment. The approval and interest rates are typically based on the borrower’s creditworthiness and financial history.
  • Secured Business Loans: These loans require collateral, such as property, equipment, or inventory, to secure the loan. The interest rates are typically lower than unsecured loans since the lender guarantees repayment if the borrower defaults.

Eligibility to Appy for NBFC Business Loans

The eligibility criteria to apply for NBFC business loans varies from bank to bank. However, some common eligibility criteria are listed here:

  • A minimum of 1 to 3 years of business operation may be required
  • Minimum turnover requirements may vary depending on the lender and type of loan.
  • A good credit score improves the chances of loan approval.
  • The financial position of the business through its financial statements.
  • Specific eligibility requirements may apply to different types of businesses, such as sole proprietorships, partnerships, private limited companies, or LLPs.
  • Business owners should typically be 21 years or older
  • Other factors, including the purpose of the loan, industry, location, and availability of collateral, may also be considered.

Documents Required to Apply for NBFC Business Loans

Some common documents that businesses may need to submit while applying for an NBFC business loan are:

  • A copy of any government-issued ID proof of the business owners
  • A copy of any address proof of the business owners
  • Documents that establish the legal existence of the business, such as business registration certificate, partnership deed, memorandum of association, articles of association, or GST registration.
  • Financial documents, including audited financial statements, income tax returns, bank statements, and balance sheets.
  • A comprehensive business plan that outlines the purpose of the loan, the amount of loan required, and the expected returns on investment.
  • If the loan is secured, the borrower needs to provide collateral documents such as property papers, insurance papers, or other relevant documents.
  • Any other relevant documents, such as NOC from other financial institutions, licenses and permits, or business agreements.

FAQS on NBFC Business Loans

How is an NBFC business loan different from a bank loan?

NBFC business loans are typically easier to obtain and have fewer documentation requirements than bank loans. They also offer more flexibility in terms of loan amounts and repayment options. However, they generally have higher interest rates than bank loans.

What are the interest rates for NBFC business loans?

The interest rates for NBFC business loans can vary depending on the lender, the type of loan, and the borrower's creditworthiness. Generally, NBFC business loans have higher interest rates compared to bank loans.

What is the repayment period for NBFC business loans?

The repayment period for NBFC business loans ranges from 12 months to 60 months.

Can start-up businesses get NBFC business loans?

Yes, start-ups can apply for NBFC business loans provided they meet specific eligibility criteria and provide additional documentation, such as a detailed business plan, to demonstrate their creditworthiness.

Can NBFC business loans be availed without collateral?

Yes, NBFCs offer both secured and unsecured business loans. Unsecured loans do not require collateral, but they may have higher interest rates than secured loans.

Can I apply for an NBFC business loan online?

Yes, many NBFCs allow online applications for business loans. The online application process is usually simple and convenient, with minimal documentation requirements.

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