Banks Vs NBFCs: Best Business Loan Option In India 2025

Key Takeaways

NBFCs offer faster and easier loans

Banks offer lower interest rates but require a strong credit history.

Startups and new businesses may find NBFCs more accessible.

Online Lending Apps Gaining Popularity.

Loan decisions depend on speed vs savings

Running a business in India in 2025 is all about grabbing opportunities fast, and for that, you need funding that matches your speed. Whether you are launching a startup, growing an MSME, or expanding your shop into a franchise, a business loan in India is your go-to partner.

But with so many options available, like NBFCs and other lending banks, the main question is: should you go for a traditional business bank loan or choose an NBFC offering quick funding?

In this blog, we will break down the pros and cons of both, so you can make the best decision for your business.

Table of Contents

What Are Banks and NBFCs in Business Lending?

Before we dive into comparison, let’s understand what these two types of lenders actually are.

Banks: The Traditional Giants

Banks have been there for many decades; they are your traditional financial intermediaries regulated by the RBI (Reserve Bank of India), and they have to follow strict business lending guidelines. Banks usually offer business loan lending based on thorough documentation, collateral, and a strong credit history.

NBFCs: The Modern Disruptors

NBFCs (Non-banking Financial Companies) are private financial institutions; however, they do not perform like a traditional bank, but they offer loans and credit facilities. NBFCs are commonly known for their online business lending with easy documentation and faster loan approval. Companies like LendingKart India, BigMudra, and FlexiLoans fall under this category.

Why Does This Comparison Matters in 2025?

In 2025, Business owners have more lending options than ever before however, not all lenders work in the same way. With the growing trend of digital-first NBFCs and the continued reliance on traditional banks, choosing the right lender can directly impact your business loan approval speed, interest rates, and repayment comfort. That’s why comparing both NBFCs and banks isn’t just helpful, it is important for making the right financial decisions for your business growth.

NBFCs vs Banks for Business Loans

Let’s look at a detailed comparison to help you decide the better fit:

Comparison chart between Banks and NBFCs for business loans. It lists key factors:

Approval Time: Banks take 7–15 working days; NBFCs take 24–72 hours.

Paperwork: Banks require extensive documents (audited financials, collateral); NBFCs need minimal documents (basic KYC and GST).

Credit Score Needed: Banks prefer 750+; NBFCs are flexible with 650–700.

Collateral Requirement: Often required by banks; NBFCs often offer collateral-free loans (e.g., BigMudra).

Suitable For: Banks suit established businesses; NBFCs are ideal for startups, SMEs, and new businesses.

So, if you are running a startup or looking for an unsecured business loan, NBFCs are more flexible and faster. Both offer small business loans, but their approaches are completely different.

Let’s take a bank as a traditional method that requires a lot of verification, a long process, and heavy paperwork. Whereas NBFCs have different and quick approaches, quick matching, faster decisions, and quick unsecured commercial loans.

Try BigMudra for quick business loan processing of up to 5 crore without any collateral.

Business Loan Interest Rate Comparison

Business loan Interest rates can significantly impact your EMIs and total repayment. Here’s how we compared both types:

Bank Interest Rates

Banks commonly offer low business loan interest rates that may range from 7% to 12% per annum, depending on the strong credit history or existing relationship with the bank; otherwise, you may face rejection of your loan application. However, getting the loan approved can be a long and document-heavy process.

NBFC Interest Rates

NBFCs offer interest rates on business loans between 10% and 18%, but the benefit is in their fast disbursal and easy processing. You can apply online and get the funds in your account in as little as 24 hours.

Factors Affecting Interest Rates:

Credit score (CIBIL)
Business age
Nature of business
Loan tenure
Financial documents submitted

Business Loan Eligibility Criteria

Your eligibility depends on where you apply. Here’s a breakdown:

Lender Type	Common Eligibility
Banks	3+ years in business, audited ITRs, strong credit score
NBFCs	6–12-month-old business, active GST, bank statements, basic KYC

So, if your business is new or doesn’t have 3 years of financials, NBFCs are more likely to approve your loan. To calculate your loan EMI, you can use the company loan calculator offered by BigMudra; it is completely free to use.

Required Documents for Business Loan Application

Here are the common business loan eligibility documents needed when applying for a business loan in India:

Document Type	Examples
Identity Proof	PAN Card, Aadhaar Card
Business Proof	Udyam Registration, GST Certificate, Shop Act
Financial Proof	Bank statements, ITRs, Profit & Loss Statement

NBFCs usually require fewer documents compared to banks, which makes them a better choice for new or small businesses looking for loans.

NBFCs vs Banks: Which Lender Suits Your Business Needs Best?

NBFCs Are Better If You Want	Banks Are Better If You Need
Unsecured business funding without collateral	Large loan amount with long tenure and low EMIs
Fast processing and online disbursal	Structured repayment terms (bullet payments/flexible EMIs)
Minimal documentation	Funding for capital expenditure (CAPEX) like machinery, plant, and real estate
Lower credit score eligibility	You have an existing banking relationship and a strong credit profile
Pre-approved offers for returning borrowers	Funds without any hurry and prefer traditional lending process
Digital onboarding without any branch visits

BigMudra is one of the best options if you are looking for an online business loan without collateral.

Best Business Loan Apps & Lenders

Here are some of the top-rated lenders and apps in India for business loans in 2025:

Lender/App	Type	USP
LendingKart India	NBFC	Instant approval, 100% online process for SMEs
BigMudra	NBFC	100% online process, MSME-focused, collateral-free business loans
SBI, ICICI, HDFC	Bank	Trusted institutions, lower interest rates

According to a 2025 study by CRIF High Mark, NBFCs have outpaced banks in the growth rate of MSME lending, with their share of MSME credit in their overall loan portfolio rising from 5.9% in FY2021 to 9.1% in H1 FY2025.

Conclusion

If you are in a hurry, need fast cash, or your business is still in the growth phase, NBFCs are clearly a smarter choice in 2025. On the other hand, if you are looking for a larger ticket size, lower interest, and have the paperwork ready, banks may give you better long-term deals.

The right lender depends on your business type, age, and funding needs. But one thing is clear: digital business lending is growing fast, and you have more options than ever before.

FAQs

1. Is an NBFC better than a bank for SME loans?

Yes, for startups and MSMEs that want fast funding without heavy paperwork, NBFCs are better. Banks are ideal for established businesses with audited financials.