How to approach an NBFC when your bank has said no

Bank rejections for SME loans are common — banks have conservative credit policies, collateral requirements that many SMEs can't meet, and a preference for established, large borrowers. NBFCs (Non-Banking Financial Companies) fill this gap, but they come with higher costs and require careful evaluation.

Why NBFCs say yes when banks say no: NBFCs have more flexible underwriting criteria, can lend against a wider range of collateral (or unsecured for smaller amounts), process faster, and can take credit decisions based on cash flow analysis rather than purely on balance sheet strength. They price this flexibility into higher interest rates — typically 16–28% versus bank rates of 10–14%.

When to use an NBFC: if you need funds quickly (banks take 6–12 weeks; NBFCs often approve in 1–2 weeks), if you don't have property collateral but have strong cash flows, if your credit profile has a historical blemish that makes banks cautious, or if your business is in a sector that banks are currently conservative about.

Major NBFCs serving Indian SMEs: Bajaj Finance, Shriram Finance, Tata Capital, Mahindra Finance, NeoGrowth, Lendingkart, and FlexiLoans (the latter two are digital lenders with faster but often more expensive products). Each has different sector specialisations and credit policies.

Evaluate total cost of borrowing, not just interest rate. Many NBFCs charge processing fees (1–3% of loan amount), prepayment penalties, insurance premiums, and other charges that significantly increase the effective cost. Ask for the total cost schedule upfront.

Use an NBFC as a bridge, not a permanent solution. If you're borrowing from an NBFC at 22% because your bank has said no, use the period to strengthen your financials, resolve any compliance issues, and build your banking relationship so that your next facility is from a bank at a better rate.