The financial system has strengthened with time, earlier it was dominated by banks mainly public and private banks. With the introduction of Non-Banking Financial Companies (NBFCs), borrowers have, now option to choose between banks and NBFCs. Also, factors such as digitalisation and increased awareness amongst borrowers have helped both banks and NBFCs to provide better services and products. Today, many borrowers prefer NBFCs due to customised services and collateral free business loans and this shift towards NBFCs is continuously rising. There are various products offered by NBFCs that are popular amongst borrowers. And MSME Loans is one of the popular products amongst borrowers who are looking to meet their financial requirement instantly.
Now lets us discuss more on what is beneficial – MSME loan from popular banks or NBFCs?
A brief on Banks
Banking in India is regulated by the Reserve Bank of India which can deposit and lend money to various entities. There are various types of banks including commercial banks which are broadly divided into public-sector banks and private-sector banks. There are other categories of banks as well, such as Co-operative banks, Commercial Banks, Small Finance Banks and so on.
What are NBFCs?
Non-Banking Financial Companies popularly known as NBFCs are registered under the companies act 1956. As per the RBI Act, NBFCs can involve in activities such as providing loans and advances, acquisition of stocks, equities, debt, etc issued by the government or any local authority or other marketable securities.
Bank vs NBFCs
|Governed by||RBI||RBI & Registered under the Companies Act 1956|
|Primary services||Saving accounts, current accounts, fixed deposits, home loans, business and personal loans, mortgages, debit, and credit cards||Purchase and selling of shares and stocks, insurance products, loans to individuals and businesses, sales and purchase of bonds, chit-funds business, etc.|
Here are a few reasons why NBFCs are favoured over banks:
There is a frequent requirement for finance to tackle the constant changes happening in and around businesses. Generally, MSMEs operate on low capital which makes it difficult to handle day-to-day operations. Hence, MSMEs opt for MSME loans from different lenders such as banks and NBFCs. These banks and NBFCs often offer collateral free loans to these MSMEs which can be used for buying new machinery and plant, upgrading the current plant and machinery, upgrading new office, ordering new inventory, paying for emergency expenses etc. Below are a few of the reasons why NBFCs are favoured over banks:
- Simple Eligibility Criteria
- Lower Interest rate
- Quick Disbursal of funds
- Minimal Documentations
- Collateral Free Loans
What are the documents required for MSME Loans?
While applying for MSME Loans, there are a few vital documents that a borrower must submit as mentioned below:
- Company PAN Card or Director/Proprietor PAN Card
- Proof of Address (Aadhar Card/Voter ID Card/Passport)
- Business Address Proof (Rent Agreement/Utility Bill)
- Financial documents (Bank statements/IT Returns)
How to apply for MSME Loans?
Today, a borrower has the privilege of applying for an MSME Loan using both online and offline methods.
While you are applying for MSME Loan online, you can follow the below steps:
- Visit the lender’s website
- Fill in the required details as mentioned on the website
- Submit the required documents
- Wait for the verification
- Your loan will be disbursed within a few hours, once all the details are verified.
And, if you choose an offline mode for MSME Loan, you can directly visit the nearest lender’s branch and fill out the form. The rest of the process will be informed by the lender.
How to calculate EMI using Business Loan Calculator?
There are various ways a borrower can calculate EMI using Business Loan Calculator:
- Online Calculator
Step 1: Visit the lender’s website and check for the EMI calculator webpage
Step 2: Insert the desired loan amount
Step 3: Fill in the interest rate offered by the lender
Step 4: Insert tenure details
Step 5: Finally, you will get your EMI Amount
- Manual Calculator
In case you don’t find an online calculator, you can do a manual calculation using the below-mentioned formula:
EMI = [P x R x (1+R) ^ N] / [(1+R) ^ (N-1)]
- P – Principal amount
- N – Tenure in months
- R – Interest rate applicable every month