Arranging funds for a small business can be challenging. Not all MSME owners enjoy good credit history, which can be a hindrance for instant business loans in India. Non-Banking Financial Companies, or NBFCs, have emerged as the preferred choice for business lending in recent times. They have also gained wider acceptance and increased prominence due to their relaxed eligibility and credit score requirement.
Let’s first get acquainted with what NBFCs are and how they help MSMEs with their fund requirements.
What are NBFCs?
Non-Banking Financial Companies or NBFC are a registered company that is regulated as per the Companies Act, 1956. They should not be mistaken for banks, but they also offer loans, credit facilities, savings and retirement planning, etc. NBFCs are generally associated with lending and investments, like trading in the money market, managing portfolios of stocks, conducting the transfer of money, etc. Notably, NBFCs cannot accept demand deposits and issue cheques or demand drafts like banks.
Why Are NBFCs Best for Availing Small Business Loans?
- Faster: NBFCs approve and sanction loans faster as compared to the traditional financial institutes. NBFCs have less stringent documentation and eligibility requirement which make NBFCs the sought after option for business loans.
- Credit Score: NBFCs do not only assess the eligibility of the borrower based on the credit. But they also take into account business vintage, turnover, ITR filed, etc. to evaluate if the borrower would be able to repay the loan amount. Unlike traditional financial institutes, NBFCs are more flexible.
- Interest Rate: most of the borrowers consider interest rate as the prime factor while applying for a loan for business. NBFCs offer best business loan rates, which are very competitive in the market, and most small business owners can afford.
- Non-Collateral Loan: NBFCs offer unsecured business loans, which are always welcoming to MSMEs.
NBFC Business Loan Eligibility
The eligibility criteria for an NBFC loan are as follows:
- The MSMEs need the business to be in operations for at least two years at a stretch.
- To be eligible for a collateral-free business loan, a business needs to have a minimum turnover of more than Rs. 5 lakh.
- The residence of the business owner should not be used as the business premise.
- The business person should be either the owner of his house or business premise.
- The ITR field in the previous year should be more than Rs. 1.5 lakhs.
Documents Required for an Instant Business Loan
NBFCs require minimal documentation for processing and approving business loan. The applicant needs to give address proof for both the business premise and residence. PAN is also an essential requirement for a loan for business. ITR for the last one year is also required. The NBFCs don’t require balance sheet, bank statement, etc.
For all the above mentioned reasons, NBFCs enjoy increasing popularity as the best option for quick business loans. Also, in the opinion of the Reserve Bank of India, the NBFCs in India are performing better than the traditional banks. A significant increase in their balance sheet is the witness for the same.