Having an easy access to financing options is essential for business owners to make sure that funds do not come in the way of the business venture realising its true potential. Usually, a business generates adequate cash from its operations, but it so happens that the payments from buyers are delayed,or some necessary expenses have come up unexpectedly. You can not let these factors affect the normal functioning of your business operations.
So, business loan turns out to be the best option in such situations. With a large number of financial institutions operating in India, there are plenty of options for you to choose from.The two most famous options at your disposal are Banks and No-collateral SME Lending companies.
What is a Bank?
As we all know, the Banks in India are financial institutions that are regulated by the Reserve Bank of India and the Banking Companies Act. They offer different services to their customers including deposits, withdrawals, investments, and loans. Banks offer a wide range of financing options to small and medium business according to their requirement.
What are the SME Lending Companies?
The SME Lending Companies are a special type of NBFC’s (Non-Banking Financial Corporations) which offer loans and advances to small and medium scale enterprises in India. They do not offer regular banking facilities like deposits and withdrawals but only offer a wide range of credit facilities to the interested business enterprises. The SME Lending companies offer both secured and unsecured loans, depending on the nature of the requirement and profile of the borrower.
Banks vs SME Lending Companies
Usually, a business owner is faced with a dilemma when it comes to selecting between banks and SME lending companies to finance their business requirements. But in the recent times, the popularity of SME lending companies has sky-rocketed in comparison to banks. What are the reasons behind this phenomenon? Here are the various factors that have established the supremacy of SME Lending companies over banks. You can find complete detail about Reserve Bank of India.
- Personalised Service
The SME Lending companies offer a personalised service experience to the customer which is missing in the case of a bank. You just need to give a call or send a message to the respective lending company,and their representative will come to your place to discuss all the terms and conditions and will extend you all the services from the comfort of your place. Whereas, in the case of banks you are expected to travel to the branch of the bank for every small detail and process.
- Quick Processing: - Banks are very stringent in terms of the process to be followed. They will take one thing at a time and will take their own sweet time while processing the application. In comparison, the SME lending companies are much lenient in this respect. They are more driven to offer you the solution to your financial woes as soon as possible. They are able to process the business loan application
- Competitive Interest Rates: TheSME Lending companies are very flexible in terms of their business loan interest rates. Over the years, they have managed to bring their interest rates to significantly lower levels, almost at par with the banks. Whereas banks are very rigid in terms of the interest rates they charge from the customers,and it is governed by the prevailing MCLR.
- Flexible Terms and Conditions: The SME Lending companies are highly flexible regarding their terms and conditions. They are willing and open to negotiations when it comes to interest rates, prepayment charges, EMI holiday etc. Banks work strictly according to the rulebook and do not budge on the terms and conditions that govern the respective business loan.
- Personalised Products Available: - Banks usually offer a limited range of financial products to their customers and are not flexible regarding any special requirements of the borrower. Whereas, the SME lending companies offer personalised services to their customers and are willing to offer personalised products, developed according to the specific requirements. They offer products like a business loan for shopkeepers and business loan for traders, which offers special benefits according to the particular requirements.
- Loan for Low credit score: The SME lending companies are flexible when it comes to the CIBIL score and offer loans to business owners with low credit scores as well. Banks have strict guidelines in place when it comes toa business loan with a low credit score; they have a minimum threshold that must be met by the borrower.
Thus, it is evident from the above analysis that availing a business loan from SME lending companies is a beneficial proposition for a business owner. But before taking a final decision, it is recommended to conduct thorough research and negotiations to get the best deal.
Rahul has over 7 years of experience in digital marketing. Prior to joining ZipLoan.in, Rahul worked at Content Mart and was instrumental in ensuring a 110% year on year growth of the business. Before this, he worked at Jabong as a part of the International Business Expansion team which focused on Overseas Markets. In the initial phase of his career, he worked with autoportal where he achieved a 65% traffic scaling. Rahul holds a Bachelors degree in Technology.