Want a Business Loan? From NBFCs or Banks | AU Small Finance Bank
Gateway to Digital Life. Download AU 0101.

For A Secured Business Loan, Should You Go With NBFCs or Banks?

    A Secured Business Loans in India can be taken from Banks Non-Banking Financial Companies (NBFCs). While banks are much safer to avail Secured Business Loan, NBFCs are also getting popular for their quick loan disbursements. Read on to figure out whether you should choose a bank or an NBFC to avail the loan.


    What is an NBFC in India?

    NBFCs provide financing services registered under the Companies Act, 1956 or Companies Act, 2013. NBFCs in India offer loans to individuals, companies, and partnership firms and work like banks. The main difference between banks and NBFCs is that the NBFCs cannot issue demand drafts and cheques like the banks.


    Types of Business Loans

    • Below are the major types of business loans in India:
    • Small Business Loans
    • MSME Loans
    • Business Loans Against Property
    • Assessment-Based Lending   

    Difference between an NBFC and a bank

    Below are the primary differences between an NBFC and a bank:




    Type of entity

    Privately-owned entities

    Authorised by the Government of India.

    Regulations & Act

    Fall under the Companies Act, 1956

    Fall under the Banking Regulation Act, 1949.

    Foreign Investments

    Allow foreign investment up to 100%

    Allow foreign investment up to 74%.

    Reserve Ratio

    Don’t have to maintain reserve ratios

    The Reserve ratio is compulsory for banks only


    Which is better to avail a business loan – NBFC or bank?

    Let us understand which one out of NBFC and bank would be a better option for you to avail a business loan based on the following parameters:


    Eligibility criteria

    Because of their simple eligibility criteria, you can get a Secured Business Loan from NBFCs easily as compared to banks.


    Rate of interest

    The Secured Business Loan interest rate is fixed and regulated by the RBI. So, the banks cannot give business loans below a particular Secured Business Loan rate. However, it can be flexible and competitive with NBFCs. For the best interest rates, you can choose to apply with a small finance bank.


    Paperwork, formalities, and documentation

    Banks follow strict paperwork process. However, paperwork and formalities are minimal when you avail a Business Loan from NBFCs.


    Credit score

    To avail a Secured Business Loan from a bank, you need to have a good credit score while you can get an SME business loan from NBFCs even when your credit score is not that good. But loans offered on low credit scores generally charge higher interest to balance out the risk of defaulting.


    Credit evaluation

    When you apply for a secured business loan from an SFB or a bank, your lender does a credit evaluation to approve your loan application. On the other hand, NBFCs rely on many factors other than credit score to determine your creditworthiness.


    Loan sanction time

    Banks offer the best Secured Business Loans but follow lengthy loan approval and sanction processes. Alternatively, NBFCs offer business loans easily and quickly.


    Loan disbursement

    NBFCs disburse loans faster than banks due to their minimal formalities and less documentation. Banks follow a stringent loan disbursement process, which is the reason why it is more time-consuming.


    To sum it up

    Banks as well as NBFCs all are great options to get Business Loans in India. But as the banks and SFBs are more traditional and stringent, they are a reliable source to finance your business needs. You can avail the best Secured Business Loans to start a new business, maintain or expand an existing business or to finance your supply chain from AU Small Finance Bank. We offer Secured Business Loans for small and medium enterprises to cater to your varied financial needs.

Apply Now

Blogs & Articles