Choosing Between Banks and NBFCs for Your Business Loan: What You Need to Know

In today’s business world, many people want to start their businesses. It is hard to become successful in business, although entrepreneurship is still vibrant. Of all companies that are statistically formed, approximately 7 in every 10 generally close shops before reaching 10 years old; there are many reasons why businesses fail, but a place where most of them need more capital.

Much like a machine requires constant oiling to run smoothly, so does a business need enough capital for its operations to be effective. It is not the lack of money that creates problems but the inability to obtain it. It feels like sinking slowly toward death when a company exhausts its financial resources, thus ending with time.

Sources of Raising Capital

A business can raise funds differently, such as venture capital, angel investors, partnerships, etc. These are usually advised for people who have yet to start a business or need a lot of money to start one. They are thus favored by evolved start-ups targeting higher levels of expansion or those with creative ideas that will require an initial capital injection.

But often, many well-established small businesses that have been making modest profits for three years or more tend to borrow. Companies that deal with staple products or services and require funds for working capital or expansions may find it a better option to take on business loans. This means they can be sought by those who want them from financial institutions, namely traditional banks and non-banking financial companies (NBFCs).

Understanding Banks and NBFCs

Eligibility criteria –

Let’s first delve into these two financial institutions:

A. Banks Banks are financial institutions that primarily engage in two activities:

  1. Accepting deposits.
  2. Granting credit.

Banks focus more on serving the community and can lend directly or indirectly through capital markets. In India, banks are controlled by the Banking Regulation Act of 1949. The bank is heavily regulated because it uses the money deposited by customers as its primary source of lending funds. Consequently, their loan terms, including those for business loans, are stringent regarding eligibility criteria and documentation requirements.

B. Non-banking Financial Company (NBFC): An NBFC provides lending and credit services but lacks the license to accept deposits. NBFCs are registered under the Companies Act of 1956 and cannot accept deposits but are allowed to lend and invest. Some NBFCs may also offer innovative credit instruments, such as loans against securities. 

What Is a Business Loan?

A business acquires a business loan to finance short-, medium-, or long-term wants. Whether it is a secured or unsecured business loan, they can acquired. According to the lender’s policies, obtaining unsecured business loans with flexible repayment tenures is easier.

Choosing Between Banks and NBFCs for an Unsecured Business Loan

When securing an unsecured business loan, you have two primary options: banks and NBFCs. Here’s how to determine which financial institution is right for you:

1. Eligibility:

  • Some businesses find it difficult to qualify because of these rules. Furthermore, their strict eligibility criteria are due to restrictive regulations set by banks.
  • Non-bank financial companies usually have more lenient regulations for qualification; hence, the conditions may vary across lenders.

2. Documentation:

  • Application processes are complicated by the need for many documents, which banks usually necessitate.
  • NBFCs typically require very few documents to make the process go smoothly.

3. Processing Time:

  • NBFCs process loans faster because they require less qualification from applicants and use direct language when doing documentation.
  • Banks can expect to take longer to complete their approval process for people who still need to open bank accounts.

4. Interest Rate:

  • Assuming higher risk, banks and NBFCs charge slightly higher on business loans.
  • Ruloans has a tie-up with banks & NBFC, offering flexible borrowing options with competitive interest rates.

5. Loan Disbursement:

  • Non-bank financial companies are typically faster at giving out loans because minimal records are needed, thus handling loans more quickly.
  • Applicants with a strong rapport, adequate amounts in savings accounts, regular sources of funds, and good credit standing might be given quick financial assistance by financial institutions.


The choice of banks against NBFCs has its pros and cons. It depends on the urgency and requirements involved in operating your venture. Nevertheless, do not forget which one you will choose when it comes to regretting later in the future. Running a business may be tough, but having quick financial backing will enable your company to grow successfully over time.

When deciding where to apply for business loans, it is crucial to consider these factors carefully to avoid potential regrets in the future. Running a business can be challenging but securing quick financial backing can significantly contribute to your company’s successful growth.

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