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When looking for a business loans, banks are often the first go-to place for borrowers. In recent times however, NBFCs or non-banking financial companies are also gaining traction and more SMEs, startups and enterprises are applying for a NBFC business loan. As lending institutions, the two entities are different and hence there are differences between bank and NBFC business loans. In this article however, we will take a closer look at NBFC loan meaning, unsecured business loan NBFC, NBFC business loan documents, eligibility and interest rates, and whether or not it is beneficial to take a business loan through a non-banking financial company.
What is NBFC business loan?
NBFC business loan is a loan that is offered by an NBFC instead of a bank. NBFCs are financial institutions that offer diverse financial services but do not have a licence for conducting banking activities. For example, they can provide loans and advances and conduct insurance business, but cannot offer the public the option to open savings and deposit accounts.
NBFCs and microfinance institutions (offering microfinance loans), have over the years made their mark in the Indian financial ecosystem with almost 50% of loans being offered by them. There are several NBFCs in India that can be considered if you are looking for a secured or unsecured business loan. Here’s a list of NBFC for business loans that you can consider:
- Bajaj Finance Limited
- L&T Finance Limited
- Tata Capital Financial Services Limited
- Aditya Birla Finance Limited
- Mahindra & Mahindra Financial Services Limited
Based on the type of NBFC, they can offer different types of loans such as: Personal loan, education loan, home loan, car loan, gold loan and business loan (among others).
NBFC loans – Key features, interest rates, documents, eligibility
When it comes to availing business loans from banks or NBFCs, the main difference lies in the eligibility, loan amount, documents required, and NBFC business loan interest rates. In general NBFCs have more relaxed lending norms which often makes them the preferred option for start-up business loans, loans for new businesses, business loans without ITR or small amount loans, such as business loans for ₹5 lakh. Let us look at some of the key features and other aspects of NBFC loans for business.
NBFC business loan interest rate
The interest rate is one of the first thing a borrower considers when selecting a lender. This is because the interest rate will directly impact the monthly EMIs the borrower will have to pay.
In general, business loan interest rates for banks and NBFCs vary slightly, with public sector banks usually offering the lowest interest rates. Also, along with interest rates, there are other fees and charges such as: processing fees, bounce charges, document processing charges, loan foreclosure charges or prepayment charges, stamp duty, amortisation fees, and more.
NBFC unsecured business loan interest rates
|₹50,000 – ₹2 cr to eligible SMEs
|Up to 36 months
|1% – 2% per month OR
12% – 27% p.a.
|Up to ₹55 lakhs
|Up to 96 months
|9.75% – 25% p.a.
|Up to ₹30 lakhs
|Up to 60 months (5 years)
|11.25% – 33.75% p.a.
(categories include small business loans, MSME loans etc.)
|Up to ₹75 lakh
|Up to 60 months
|12% p.a. onwards
|₹3 lakh – ₹40 lakh
|Up to 60 months
|15% – 30% p.a.
|₹1 lakh – ₹30 lakh
|12 – 60 months
|24% p.a. onwards (on a reducing rate basis)
|₹5 lakh – ₹50 lakh
|12 – 36 months (48 months for self-employed individuals)
|Capri Loans (secured loans for MSMEs)
|₹5 lakh – ₹50 lakh
|Up to 15 years
|Floating and semi-fixed interest
*This table is for reference only. Borrowers are requested to check with the lender before taking a NBFC unsecured business loan.
NBFC business loan eligibility criteria
Like banks, NBFCs have their own eligibility criteria when offering business loans. Though the eligibility requirements are usually similar (with minor differences) there can be specific requirements or case-wise requirements for different NBFCs. Let’s understand the basic eligibility requirements for NBFC business loans:
- Type of business – Usually all entities including sole proprietorship, LLPs, start-ups, partnerships, large enterprises etc. (this does not include businesses operating in restricted industries or are blacklisted)
- Business vintage – Minimum 6 – 36 months (this varies between lenders)
- ITR filing – Minimum for 1 year with turnover details duly audited by CA
- Business turnover – ₹50,000+ at the time of application (quarterly or half-yearly)
- Business location – Office address should not be in a negative location
- Age – Applicant’s age should be within 21 – 65 years at the time of loan maturity
- Credit score – 680+ (preferably 700+ if seeking collateral free finance)
Documents required for unsecured business loan NBFC
When taking an unsecured business loan, the NBFC will request for some documents. These documents are broadly related to applicant KYC, business details and financials, CIBIL/credit score etc. to check the creditworthiness of the borrower/business and reduce the NBFCs risks of lending.
NBFC unsecured business loan documents required:
- Duly filled in application form and 2 passport sized photos
- KYC documents including Identity and address proof – E.g., Aadhaar card, voter’s ID, passport
- Business and individual PAN card
- Business ownership proof and business address proof
- Proof of business registration and GST registration
- 6+ months bank statements
- CA audited balance sheet and P/L sheets of previous year
- ITR for last 2-3 years
Types of NBFC business loans
In India, there are different types of NBFCs. There are: Infrastructure finance companies or NBFC-IFCs, Housing finance companies, Mortgage guarantee companies, Microfinance companies, etc.
Based on the type of NBFC, they provide loans and advances to business. For those NBFC that offer business loans to SMEs and enterprises, there are several types of NBFC loans that can be availed. Some of the popular options are:
- SME loans and MSME loans: These are small business loans offered to MSMEs and SMEs. These loans are usually short term loans, with basic documentation and eligibility requirements.
- Working capital loans: These loans are offered to aid businesses meet daily working capital and cash flow challenges.
- Term loans: These loans are offered for a fixed term period and borrowers have to pay EMIs based on the calculation. In most cases, these loans can be borrowed for different business purposes including business expansion, raw material purchase, payment of rent and salaries, etc.
- Machinery loan: These loans are offered to purchase machinery, new and pre-used. In most cases, the machinery is considered as collateral and no additional asset needs to be pledged while availing machinery loans.
NBFC business loan calculator: How to calculate loan EMI
Your NBFC business loan calculator is no different than a regular business loan EMI calculator. You will need to enter the loan amount, loan duration in months, and NBFC loan interest rate annually. You can find a EMI calculator online to calculate and know the exact instalment amount you will have to pay every month, when you borrow funds from a specific NBFC.
Example: NBFC business loan EMI calculator
|Loan tenure (in months)
|Interest rate % p.a.
|EMI per month
|Total amount payable
As can be seen from the example above, the NBFC business loan interest rate, loan amount and loan duration have a key role to play in calculating the EMI and loan repayment schedule.
How to apply for NBFC business loan online
A proper question at this point would be to enquire about the NBFC business loan apply online process. Listed below are the steps that most NBFCs follow to facilitate online business loan application:
- Check the NBFC website and apply for the loan online by filling in the enquiry form. Check if the NBFC has branches in your city, in which case you can visit a branch and apply offline.
- Wait for the call back from the NBFC representatives who will explain the process, answer queries, and share details on the information and documents required during application.
- Collate all scanned copies of your documents (for online) and attested photocopies (for offline) as per the documents list shared.
- Fill in the loan application form and upload all documents and submit. This will be followed by a verification by the NBFC (usually 2-7 working days).
- Keep time for final discussion if the loan request is approved to discuss any terms. This will be followed by the loan sanction process and signing of agreement.
- Disbursement of loan amount will commence as agreed upon and the borrower will be expected to repay the EMI as scheduled.
Note: When taking a business loan through banks, there’s often the option to transfer business loan from one bank to another. Check with your lender if the option is available when taking loans through NBFCs.
Why take a NBFC business loan? Benefits for your business
There are several benefits of NBFC loans for your business. Banks often have specific norms and eligibility requirements especially for emerging businesses and MSMEs to reduce risks of default.
Here are some of the reasons why you should take a NBFC small business loan:
- Flexible lending terms and norms as regulations for NBFCs are more relaxed
- Different interest rates and types of loans offered based on the repayment capability of the borrower
- Wide range of loan amount available for businesses of all sizes (usually loans between ₹1 lakh to ₹2 crore)
- Collateral not required in most cases (note- lenders may however ask for a guarantor or a co-borrower)
- Loans offered for all types of businesses including start-ups, entrepreneurs, and professionals, etc.
Which NBFCs to avail loans from?
There’s no answer to which is the best NBFC business loan. Most NBFC loans have similar features and offerings, and vary in terms of interest rates offered, loan repayment terms, other charges and fees etc.
Here’s a list of NBFC for SME loans you may consider:
- Bajaj Finserv
- Tata Capital
- Fullerton India
- Mahindra Finance
- Muthoot Finance
- Aditya Birla Finance Limited
NBFCs today balance the lending ecosystem. It’s important for small businesses to evaluate the lender, compare terms and interest rates offered, and apply to the right lender for the best returns.