Last updated 12 Nov 2026
Banks and non-banking finance companies (NBFCs) both lend to businesses and both are regulated by the Reserve Bank of India. Banks often have a wider range of products, including working capital limits and trade services, and may be more conservative on risk. NBFCs often move faster, accept a wider range of profiles and build products around specific segments. Neither is automatically cheaper or safer: compare the same loan on the same terms.
The comparison below is about patterns that often hold, not rules. Each bank and NBFC has its own policy, and the loan you are offered depends on your profile. Pricing is set by the lender; see current rates on the interest rates page, and compare any offer on the APR in the Key Fact Statement.
How banks and NBFCs differ
Bank and NBFC compared for business loans
| Point | Bank | NBFC |
|---|---|---|
| What they can offer | Term loans, cash credit, overdraft, bank guarantees, letters of credit, trade services | Term loans, loans against property, machinery and invoice finance; most do not offer current accounts |
| Deposits | Takes deposits and offers current accounts | Does not take demand deposits; funds its lending differently |
| Appetite for risk | Often more conservative; credit score and financial statements weigh heavily | Often broader; may serve thinner records or newer businesses |
| Speed | Can be slower, with more committee steps | Often quicker, though complexity affects both |
| Security | Often wants collateral for larger limits | Both secured and unsecured products |
| Flexibility | Standard structures; may be rigid | Product design can be more flexible |
| Relationship | A salary or current account with the bank can help | No account needed; the product is the relationship |
| Regulation | RBI | RBI |
When a bank tends to suit
- You need a revolving working capital limit and a current account.
- You have audited financials, a stable record and, if needed, collateral.
- You want a bank guarantee or a letter of credit, which banks are set up to provide.
- You can wait a little longer for a decision.
When an NBFC tends to suit
- Your record is thinner, or your business is newer.
- You need an asset-linked loan, such as machinery or a commercial vehicle, with a product built for it.
- You value a shorter process and more flexible structures.
- You have been declined elsewhere for reasons that another lender's policy may treat differently.
These are tendencies. Some banks lend to new businesses and some NBFCs are stricter than a bank. Use the table as a starting point for questions, not as an answer.
Compare on the same terms
A worked example shows why. Two offers for ₹10,00,000 over three years come with different charges. The first has a lower stated rate but a processing fee and valuation charge set by the lender; the second has a slightly higher stated rate with lower charges. The APR brings the charges into one figure, so it tells you which costs less over the same period. Ask both lenders for the Key Fact Statement, and put the APR, total repayment, processing fee, prepayment terms and penal charges side by side. Use the EMI calculator for your monthly outgo. See Key Fact Statement and APR.
What to ask both types of lender
| Question | Why it matters |
|---|---|
| What is the APR, including all charges? | The honest cost of the loan |
| Is the rate fixed or floating, and what benchmark? | Your EMI can change if it floats |
| What are the prepayment and foreclosure terms? | Early closure should not be penalised unfairly |
| What security is needed and what happens to it on closure? | Know when documents are returned |
| What are the penal charges for a late EMI? | Set by the lender; ask in writing |
| Who is the grievance officer? | You should know the route before a problem |
Both are regulated; check anyway
Check that the lender is a bank or an NBFC registered with the RBI. For an NBFC, ask for its registration details and check them on the RBI website. Beware of any lender that asks you to pay a fee to a person or a third-party account before the loan is paid out. A genuine loan is paid into your own bank account. The digital lending safety guide lists the red flags.
Choosing in practice
- List your need: amount, use, tenor, and whether you can offer security.
- Compare your details with each lender's published eligibility, rather than applying everywhere. Too many lender checks in a short time can lower your score.
- Get two or three offers on the same amount and tenor.
- Compare the APR and the Key Fact Statement.
- Choose on total cost, terms and service quality together.
LOANZ 360 is a loan aggregator, not a lender. It works for partner banks and NBFCs, compares your details with their published criteria before any application, and one advisor follows your file. The lender decides, prices and pays out into your account. See the business loan page or the enquiry form.
Frequently asked questions
Is an NBFC business loan riskier than a bank loan?
Not by nature. Both are regulated by the RBI and must follow rules on disclosure and conduct. Risk to you depends on the loan terms, the lender's practices and whether you can repay. Always read the agreement and the Key Fact Statement.
Which gives a quicker business loan, a bank or an NBFC?
NBFCs are often quicker, but speed depends on the product, your documents and the lender's process. A bank may be as quick for a simple product with a clean file. Ask each lender for a timeline.
Can an NBFC give me an overdraft or cash credit?
These facilities are usually offered by banks. Some NBFCs offer similar revolving lines on a different structure. Ask what the facility is called and how it works.
Do banks always ask for collateral?
No. Banks offer unsecured business loans too, usually on strong profiles or for smaller amounts. Larger limits often need security.
Does the type of lender affect my credit score?
Not by type. What matters is how you repay and how many checks appear on your report. Too many lender checks in a short time can lower your score.
Related reading: Business loan rejection reasons, MSME loan guide, Working capital loan guide, Key Fact Statement and APR, Digital lending safety, Business loans, Unsecured business loan, NBFC glossary, Lending partners.
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