Published on Jul 12, 2022Updated on Sept 6, 2023
With the new generation taking over the world, most people wish to open up businesses of their own. But the success of a business is rare as the odds are high. Out of every 10 businesses that are started, 7 of them fail within 10 years. There are many reasons a business can fail, but capital is crucial.
Just as to run a machine, constant oil is required, in the same way, to run a business, capital is required. Insufficient capital in the system is not the cause, not being able to obtain those funds is the reason. When a business runs out of capital, it is like a slow death (closure) of the same.
There are many ways a business can raise funds such as – venture capital, angel investors, partnerships, and more. These methods are recommended for those who have not yet started their business, or need a vast amount of capital (and have no funds of their own) to begin. These methods are often preferred by mature startups looking to expand exponentially, or people who have extremely innovative ideas that need a lot of initial investment.
Regular small businesses however, that are mildly profitable and have been in existence for 3 years or more, tend to turn toward taking up a loan. A business loan is more preferable among small businesses that have a conventional product / service offering and need extra funds to manage their working capital needs or business expansion plans. A loan can be taken from a financial institution that can either be a bank or an NBFC (Non-banking Financial Company).
Let us first understand the 2 financial institutions –
A bank is a financial institution that primarily conducts 2 activities:
Banks are more public-oriented. They can perform lending activities directly or indirectly (through capital markets). Banks in India are registered under the Banking Regulation Act, 1949. Since they use the funds obtained from depositors as their primary source of funding borrowers, they are heavily regulated. Thus, their terms for any kind of loan, including a business loan, tend to be highly stringent in terms of determining an applicant’s eligibility or documentation requirements.
An NBFC provides lending and credit services but does not have the license to accept deposits. An NBFC is registered under the Companies Act, 1956. NBFCs cannot accept deposits but are allowed to lend and invest only. A few NBFCs may also provide innovative forms of credit instruments such as a Loan Against Securities. SMFG India Credit is one of India’s reputed NBFCs that is registered with the RBI.
A business loan is taken up with the motive of financing a business’s short, medium, or long term requirements. These loans can be secured as well as unsecured. An unsecured business loan is very easy to avail and a flexible tenure for repayment can be chosen, depending on the lender’s policy.
The 2 options available for quick financing are- Banks and NBFCs. Let us understand which financial institutions will be beneficial for you. Here are some points that will help you make a choice:
Both banks and NBFCs have their benefits and disadvantages. The decision depends upon your urgency and business requirement. Make an informed decision for avoiding future losses or regrets. Running a business can be difficult, and thus, having quick financial support will help your business sustain itself in the longer run.
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*Terms and Conditions apply. Loans are disbursed at the discretion of SMFG India Credit.