When availing a loan, the businessman gets confused between a bank loan and NBFC business loan. There are a number of differences between the two and their lenders. And in order to make a sound choice, the entrepreneur must know each and every aspect about them. In this blog, we shall discuss the difference between a bank loan and NBFC business loan in depth.
Availing a loan for business is the matter of prime importance. The funds from an external source are availed to take the business ahead and make it more profitable. Funds availed from an external source can be used is a number of ways, including for machinery purchase and increasing capital.
Said that, when we talk about a business loan, it can be availed from a bank or an NBFC. And both the lenders have their own set of pros and cons. So, it, at times, turns difficult for the borrower to decide which loan to avail – a bank loan or NBFC business loan. To help the businessman in this confusion, we have below listed the major differences between the two.
An NBFC loan is offered without collateral. The businessman availing a business loan is not required to hypothecate any asset. The loan for a business is entirely sanctioned on the basis of the creditworthiness of the borrower. Documents such as bank statement and ITR and a high CIBIL score play an important role in the approval/disapproval of the loan.
And if we talk about bank loan, a loan from a bank is mostly offered with collateral. No bank wants to risk their money. So, they offer money only to the borrower who is willing to hypothecate an asset. In the case of the borrower defaulting the loan, the bank gets the possession of the asset. And it can sell off the asset to recover the losses.
The banks require a long list of documents to process the business loan. They want to ensure that the borrower to whom they are lending money is credible and can be trusted with money.
As opposed, the NBFC business loans are offered at minimal documentation. The borrower is not required to provide a long list of documents. Just a couple of them to ensure their creditworthiness and provide proof to their income, identity, and address.
Banks have offline loan application process. The borrower is required to visit the bank branch to fill the loan application. In addition, for every inquiry regarding the loan, the businessman will have to visit the branch. Also, the hard copies of the documents required for business loan are to be submitted along with the loan application offline.
The business loans from NBFCs are offered online. The entrepreneur can apply for a business loan online by visiting the website of the lender. In addition, he can also upload the PDFs of the required documents online. And not just this, they can get answers to all their inquiries online. All they have to do is leave a message on the lender’s website along with their contact number. The representative will call them back.
also read: what are the tax benefits of business loans?
With the requirement of a long list of documents, it takes bank quite a time to check the documents and process the loan application. In addition, if the loan is approved, the banks also take some time in disbursing the loan. The situation is different for the NBFC.
An NBFC business loan is processed, approved, and disbursed within a few days. The NBFC business loans are offered at basic eligibility and fewer documents. So, the NBFC does not take a lot of time in checking the eligibility of the borrower. They mostly approve/ disapprove loans in just a couple of days.
Now that you know the basic difference between a bank loan and NBFC business loan, you can avail the loan that will be the best for you.