Small and Micro enterprises owners often require financial support to run and grow their business. As per ASEAN, MSMEs contribute more than 50% of GDP and account for 99% of business establishment in ASEAN’s workforce, whose India is also a part. In the situations where they require additional funds, they can avail a machinery loan, working capital loan, or any other loan for that matter from banks, NBFCs, and informal investors.
Machinery loan interest rates in India vary depending on the lenders. Traditional lenders have been helping MSMEs, but these businessmen generally don’t apply from them due to their long loan procedures. Also, they take a lot of time in processing and sanctioning business loans. Also, banks don’t offer collateral-free loans. Due to the requirement of collateral, many small business owners cannot avail loans from the banks.
It is the reason why MSME owners look for other sources of financial income. The other options include informal investors and NBFCs. Informal investors don’t have a lengthy application process. Also, they don’t take time in sanctioning loan amount. In most cases, informal/private investors are family, friends, or relatives who are willing to help the individual in the time of need. These acquaintances don’t even ask for collateral or have high rates of interest. But, not every businessman has acquaintances to get help in such situations. Also, borrowing money from family or friends can create bad blood as well. And with other private investors, the problem of high interest rates stays, which not every MSME owner can afford.
So, the last and best option is Non-banking Financial Companies or NBFCs. These companies offer machinery loans which are designed to help micro and small enterprises in the growth of their business. Let’s take a look at the various features of NBFCs.
The application procedure of the NBFCs is a lot more straightforward than banks. They don’t ask the borrowers to go through a lot of formalities, which is opposite in banks. No business owner can afford to spend/lose hours to complete business loan formalities. NBFCs help them as they don’t waste their time with unnecessary formalities.
Instant Machinery Loan Approval
The MSME owners generally don’t have a lot of time to get the loan sanctioned. They want the loan application process to be carried out in a shorter time. NBFCs have a fast application process where they process the application and disburse the loan amount within a few days.
No Collateral Requirement
Generally, SME owners don’t have a business asset to hypothecate to avail a collateral business loan. NBFCs don’t ask for collateral, i.e., they offer business loans without collateral. Therefore, NBFC business loans are the best option for small business owners; this particular feature attracts a lot of MSME owners towards NBFC. Bank and private lenders generally don’t offer unsecured business loans.
Now, coming to interest rates, NBFCs offer the best interest rate for a business loan in India. They charge interest on the reducing amount, which saves interest cost. Thus, the MSME owner can save money on machinery loan.