Setting up and running a business is not a child’s play, arranging adequate funds for the purpose can be a real challenge. Not all MSMEs (Micro, Small, and Medium Enterprises) enjoy good credit history and can show impressive profit & loss statements to help them get their business loan readily approved by banks. Non-Banking Business Loans in Delhi and in other places are gaining wider acceptance and increased prominence due to relaxed credit score requirement.
Let’s get acquainted with what the NBFCs are, how they can help the MSMEs with their fund requirements and what the business loan eligibility criteria they follow for availing the funding facility.
A Brief Introduction to NBFCs
NBFCs is the acronym of Non-Banking Financial Companies. A Non-Banking Financial Company (NBFC) can be described as a company registered under and also regulated as per the Companies Act, 1956. As the very name suggests, they should not be mistaken for banks even though they are involved in offering loans, savings and retirement planning, credit facilities and investment products, etc.
They are associated with lending and making investments like trading in the money market, conduct transfer of money, manage portfolios of stocks, etc. NBFCs cannot accept demand deposits or issue drafts or cheques like banks.
Why NBFCs for Availing Small Business Loans?
NBFCs are playing a crucial role in financing the fund requirement of MSMEs. Micro, small, and medium companies who are in the business for at least 2-3 years consider availing NBFC business loans because:
Easier & Faster: The business loan approval and sanction process are faster and easier compared to traditional financial institutes. Less stringent attitude towards documentation and processing requirement have made NBFCs the most preferred choice of MSMEs for availing small business loans.
Credit Score not an Issue: Credit score requirement is relaxed and not stringent at all. NBFCs do not turn down the business loan application made by people who do not have an impressive credit history. Unlike traditional financial institutes, they have been found to exercise more flexibility with credit scores and the cut-offs.
Discounted Interest Rate Advantage: Both the existing as well as new customers are very much likely to advantage from the discounted interest rates.
Attractive Interest Rates: Marginal Cost of Lending is not an issue with the NBFCs. Non-Banking Financial Companies offer business loans on the basis of Prime Lending Rate (PLR) that is not under the regulation of RBI, unlike MCLR. This absence of RBI regulation gives them the freedom to offer small business loans at competitive business loan interest rates.
Non-collateral Loan: The opportunity to avail non-collateral business loans is always welcoming to any micro, small, and medium business owners. NBFCs ensure this, unlike banks.
Eligibility Criteria for the Business Loan
The eligibility criteria for availing a non-banking business loan are
- The MSMEs need to be in the operation for a minimum of 2-3 years at a stretch.
- For being eligible to get a collateral free loan, a business needs to enjoy a minimum turnover of INR 10 lakhs in the last 1 year.
- The residence should not be used as the business premise.
- The person should be the owner of either the business premise or should possess a house of its own.
- The Income Tax Return filing (ITR) of the previous year should be more than INR 2.5 Lacs.
Necessary Documentation for the Non-banking Business Loan
NBFCs require minimal documentation for the business loan approval and sanction process. The applicant needs to give both their business premise address proof as well as residence address proof. PAN card is also necessary. In addition to these, the applicant for an NBFC business loan also needs to produce before the concerned authority and submit the ITR file for the last 2-3 years.
Though there is no need for showing balance sheet, the bank statement for the past 12 months has to be shown and submitted. All these documents are not tough to collect and submit for MSMEs in order to secure a non-banking business loan in the national capital or anywhere across the country.
All these make NBFCs enjoy increasing popularity as the ideal destination for availing business loans. In the opinion of the Reserve Bank of India, the NBFCs are witnessed performing better than traditional banks as their balance sheet is increasing by a considerable percentage.