Banks raise public deposits at a very low cost– which helps them lend at lesser interest rates. Banks & NBFCs offer loans to borrowers spread across wider geographies and those with a poor credit history – if borrowers have good future cashflows and a clear intent to repay. Private money lenders on the other hand charge exorbitant interest rates and fees –affecting the net margin of businesses.
Secondly, both banks & NBFCs are regulated by RBI. The fees, terms and conditions of the loan are clearly communicated in writing to the borrower. The same is not true for the informal sector. In many cases, the terms are altered post-deal.
Banks and NBFCs provide a legal loan recall notice and at least 15 days’ time to foreclose the loan. The informal sector and other related parties in missed installments– something that has never been observed in the formal sector.
Finally, the formal sector is now digitized– the borrower can easily track his loan -installment due date and amount, outstanding principal, and other details. The loan application is also accepted online by some banks/NBFCs – a record of the entire process is stored for future reference.
Over the last decade, banks have become extra cautious while lending – after the strict regulations introduced by RBI after defaults by leading businesses. Things worsened further due to Covid-19. During the global pandemic, many businesses defaulted on their loans – leading to poor credit history. These two factors combined have made it difficult for
businesses to avail credit from banks.
As mentioned earlier, even though NBFCs have slightly higher interest rates – they have helped provide credit across diverse geographies and borrowers to whom banks have not been able to cater. NBFCs generally have a higher risk appetite. Rather than focusing more on prior credit history, there is more focus on the generation of excess cashflows from the loan and the intention to repay.
Also, NBFCs have a shorter turnaround time than banks due to lesser red tape & paperwork.
About Red Fort Capital
Red Fort Capital NBFC has its own credit evaluation system to check the borrower’s credibility in a holistic approach, which helps it provide business loans of Rs. 1-10 crore in a record time of just 7 days. This is why it is one of the best NBFCs for MSMEs to secure quick capital. With a strong investment portfolio, the company believes in quick deal closure, pragmatic returns, and long-term partnerships. It has a wide range of deal portfolio from a financing logistics company to D2C black water brand, Red Fort capital is actively funding time-sensitive opportunities and supporting Micro, Small and Medium Enterprises in their growth journey. Therefore, it is a reliable NBFC that has been financing growth-oriented credit to businesses.