Business Loan is a scheme that provides finance to maintain the right track of the business. If you are running your own business for 3 years and you need finance, then you can avail this scheme. But, when you apply for a Business Loan, you go through a lot of confusions. For example, what is the best offer? Where should I apply? Should I choose an NBFC or a Bank?
First of all, you should understand the difference between an NBFC and a Bank. NBFC means Non-Banking Finance Company that provides banking services without holding a banking license or any legal agreement. NBFCs can only lend or make investments, they can’t accept demand deposits. It is mandatory for NBFCs to get registration under the Companies Act 1956 to perform functions similar to banks.
When it comes to borrowing a loan, there are more facts that you should know. Banks have strict and hard criteria and rules regarding the eligibility for a loan as compared to the NBFCs. Banks calculate the eligibility by considering company profile, company category, monthly income, banking history, etc. If you have ever applied for a loan, you might be surprised when the Banks ask for your company profile and give you company category explanation for the interest rates. Clean the layers of dirt from your memory rack and try to commemorate. This is because of the norms of Banks. Banks have their own list of company category. They have listed your company in Super A, Cat A, Cat B, Cat C, and Cat D category. The Interest Rates of Business Loan vary according to the category. But if your company is not listed in any list, then you may face problems in getting your loan from a bank. Then you should go for an NBFC like Bajaj, Fullerton India, Tata Capital, etc. NBFCs provide loans to the non-listed company employees also.
There is also a difference in the loan tenure. Banks can offer loan up to maximum 5 years while NBFCs can only offer up to 4 years. But if we take a look at Interest Rates, in 85% cases interest rates are higher as compared to the banks. To make more clarity, consider a situation. If you are working in a listed company, but you are not getting the amount required from a bank because of your eligibility. Then you can avail your loan from an NBFC. Usually, NBFCs take a multiplier of 15 to your take home salary to calculate the amount eligibility.
Another factor is the credit history. If you have a credit history only then you can take a loan from an NBFC. If you have not taken any loan in the past, you are not using any credit card, then you are not eligible for NBFCs. For Example, HDFC provides a loan to the customers who are not holding any credit history, but Fullerton, Bajaj considers customers having a credit history. This criterion is strictly applicable to metropolitan cities. If you are in Chennai and you are looking for a Business Loan in Chennai, you must check your credit history to get a loan from NBFC.
I can conclude as, in some cases NBFCs are good, in some cases banks are good, but it depends upon your profile, income, company category, and banking history. So, you must choose your lender very carefully. Consider all the factors, take expert advice and choose the best one for you.