Over the past few years, non-banking finance companies (NBFCs) have undergone a significant transformation, and today they form an important component of India's financial system. Playing a critical role in the development of infrastructure, transport, and employment generation, NBFCs are changing the business loan landscape in the country.
According to a report from Boston Consulting Group, the share of NBFCs in total loans between calendar years 2014 and 2017 increased from 21% to 44%. So, let's look at how these financial institutions are changing the approval and disbursal of business loans.
Relaxed Lending Norms for MSMEs
Back in the day, banks were the forte of MSME lending. Lately, NBFCs have stepped up their presence in this segment. MSMEs, touted as the engines of growth, contribute to a third of the Indian GDP. However, tightened regulatory norms from banks, humongous paperwork, and the need for collateral to secure loans have made MSMEs turn towards NBFCs. Also, with big firms cornering bank loans, NBFCs have become the go-getters for business loans for MSMEs.
Additional read: Financial solution for MSMEs
As compared to banks, lending norms from NBFCs are somewhat relaxed. In some cases, MSMEs don't have to pledge any collateral for the loan. A good credit score with a simple application form is enough to initiate the loan process. There's no need for volumes of paperwork. The process is quick and fast. Business loan amounts from NBFCs can go as high as Rs. 50 lakh.
A Pre-approved Loan Limit
Some NBFCs offer business loans with a pre-approved loan limit. Businesses can withdraw funds from their pre-approved loan limit as and when required. An important element to consider is that businesses need to pay interest only on the amount used and not on the entire loan limit, unlike term loans, where EMIs are on the entire amount.
Interest charged only on the amount utilised brings down the monthly EMIs, resulting in savings. Also, with a pre-approved loan limit, businesses are never short on funds when they need them the most. They don't have to make multiple applications for procuring funds whenever required.
Flexi Business Loan Options
With changing times and demanding innovation in offerings, NBFCs offer Flexi business loan options to business owners - Flexi term loans and Flexi interest-only loans.
Additional read: What is Flexi Business Loan
While in Flexi term loans, the EMIs consist of the principal and the interest component. In Flexi interest-only loans, the EMIs consist only of the interest component with the option of paying the principal at the end of the tenor. This further brings down the EMI amount.
Thus, NBFCs, through their innovative products and lending, have made securing finances easy and hassle-free. In addition, strengthening data analytics and information from credit bureaus has helped NBFCs take a quick call on business loans.
Additional read: Benefits of Bajaj Finserv business financing
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