For an efficient and thriving economy, a country needs MSMEs, and for an equally efficient and thriving business, an MSME needs instant cash, which they can invest in working capital needs, expansion of business and other critical business-related expenses. Business loans can be a dependable way to get that kind of instant cash. The micro, small, and medium enterprises are mainly shops or small scale manufacturing units. These businesses are in dire need of capital about the expansion of their business, working capital investments, or renovation purposes.
Business loans offered by Non-Banking Financial Companies can solve this need for instant cash. These are specific business loans which provide high-value loans with no requirement of collateral. The documentation process for a business loan is also reasonably easy where sometimes only two documents are asked for. The facility of net access and management through personal devices make it convenient for the MSME owners to keep track of the loan and interest charges. Usually, the interest rates are also kept low keeping in mind the interest of micro and small businesses.
There are mostly three ways for MSMEs to get an instant business loan; they are loans from banks, NBFCs, and the informal sector. All the options have their respective advantages and disadvantages.
- Bank Loans: banks are undoubtedly the most trusted source of financing and have been so for decades. RBI regulates bank Loans, and their rate of interest is also affordable and is set up considering a lot of factors, like Inflation, growth rate, etc. However, banks tend to have stringent policies related to eligibility and verification of the applicants which are tough to comply with for small and medium-sized businesses. This is one of the significant drawbacks of applying for a business loan with the banks. Especially when a company needs instant funding, banks are not much of help due to its lengthy and time-taking process.
- Non-Banking Financial Companies: NBFCs are considered to be the best option for small businesses, especially for those in need of instant cash support. The process of getting a business loan from NBFC is straightforward and swift, which ensures fast disbursement of funding. It has an online process, which means you can apply for the business loan and get it approved while just sitting at your home or office. The eligibility criteria and the documents verification process are also very lenient for NBFCs making it a very viable option for all types of businesses. Once your business loan is approved, the loan amount is disbursed within a few working days in your bank account, a great advantage for the businesses which are looking for an instant business loan. The customer-friendly policies of NBFCs have already attracted many small businesses, and the numbers are increasing.
- Informal Sector: the informal sector is slowly going out of the market, mainly due to the rise of NBFCs. Earlier, businesses, which got rejected from banks due to lack of collateral or paperwork, had to rely on the informal sector of capital funding. Getting business loans from the informal sector is a lot easier than that of banks as it doesn't require any collateral asset or extensive paperwork. However, since it is an unregulated market, they charge very high-interest rates and are often alleged for exploiting small businesses who are in dire need of money.
Banks offer business loans at a low rate of interest but getting a business loan approved from them is tough, on the other hand, informal lenders will approve your business loan quickly, but they charge a very high-interest rate. In this context, NBFCs act as the middle ground. Easy to avail business loans at a very affordable interest rate. You just need to check CIBIL score before applying for a loan with them.
However, the final decision depends on individuals and businesses based on the type of business loan they require and various other factors. Recent trends have shown a massive shift of small businesses towards Non-Banking Financial Companies, thanks to their customer-friendly policies and flexible business loan schemes. They are an excellent option for all those businesses which are looking for instant funding.
