How Safe is It to Take Secured Loan from outside the Bank

By Rachit Chawla, CEO, Finway Capital

A continuous flow of adequate funds in the pipeline is the pre-requisite of making the business system functional in every aspect. Whether the firm is in its initial stage or has already been a long player in the industry, a project in its initial stages or in the developmental phase all these stages require ample financial backup to keep up with their growth momentum in the markets. And with so many financial institutions both banking and non-banking ones offering lucrative fund options the process of zeroing adequate funding becomes quite a tough challenge to be met. Borrowers are stuck in making a choice amongst the NBFCs and banks or either while selecting one amongst the secured and the unsecured loans.

Hassle-free and stress-free borrowing

Rachit Chawla, CEO, Finway Capital

The boundaries between the industries are blurring out and there’s a great storm of startups and small to medium-sized enterprises (SMEs) protruding up in the market with little to no credit scores. And as per the recent industry reports SMEs will need around $650 billion on yearly basis for sustained business operations and mainly for growth capital. In such a case, the traditional process of taking loans from the banking firms turns out to be a lengthy, tedious and confusing as the functional set can’t be determined easily. Hence, making the new-age businessmen avoid lending from the bank mode and go for NBFCs that offers much easy loan process with least of hassles and best of EMI options.

Availability at low-interest rate

Secured loans are termed best for supporting the tremendous wave of startups that has hit the nation. And, the tailor-made borrowing options, as well as lower interest rates offered by NBFCs, have brought most of the nation’s SMEs up close with their secured loans instead of that from the banking institutions. Earlier more than half of the SME sector was dependant on the self-financing options like gold loans which were characterized by high interest rates but after the government’s intervention into the subject, the banks took various initiatives to help out these firms. Still, not much changed in the lending fundamentals and there remained a huge gap between the requirement of funds and the availability of funds in the market. However, with the emergence of NBFCs the gap is filling up, fast; these firms are offering the new generation of SME with tailor-made secured loans as per their appetite for business expansion plans or new business set-up plans.

The secured loans by NBFCs are being provided at competitive rates much lower than the traditional banking firm’s EMIs. The availability of cheaper loan products has enabled the young entrepreneurial minds to believe in their skills and put on their strengths to test with the best of their efforts. On an overall, this has boosted up the economy with a significant job creation capacity of around 1.3 million jobs per year and hence, employing around 60 million people. Unlike banks, the NBFCs are spread all throughout the length and the breadth of the country and helping them out with their finances but it is the Tier-II and Tier-III countries that have been benefitted the most.

Feeling the tenor

In the present marketing scenario, all businesses including the SMEs have to build a strong technological as well as Customer Relationship Management backup to be existing as well as competitive in the market. This requires huge fund investments and generally ends up with great returns and NBFCs with their much-needed cushion of a longer tenure and reduced EMI (which can be easily serviced by the cash flows) in secured loans have well-utilized this factor to help SMEs. This has helped various industries like textiles, IT and many more in improving their bottom-line to create a bigger and better client- servicing base to cater to the needs of an enormous population of the nation.