10 Things NBFCs Look For Evaluating Business Loan Application

16 Jan 2023

A Non-Banking Financial Company (NBFC) is a financial institution that provides banking services but does not hold a banking license. They are regulated by the Reserve Bank of India (RBI) in India. Non-Banking Financial Companies (NBFCs) provide a range of financial products and services, including unsecured business loans. They are typically smaller and more specialized than banks and may be more willing to take on higher-risk customers or projects. NBFCs have been an alternative source of financing for small and medium-sized businesses or SMEs that may not qualify for a traditional bank loan for business needs.

How are NBFCs helping SMEs in their growth?

NBFCs provide SMEs with a valuable source of financing and other financial services that can help them grow and develop their businesses. NBFCs like Oxyzo Financial Services play a vital role in helping Small and Medium Enterprises (SMEs) grow by providing them with access to collateral-free business loans and is an ideal solution to businesses that need to purchase inventory, pay for operational expenses, or invest in new equipment. Additionally, Oxyzo offers flexible business loan terms, low-interest rates, and repayment options which can be tailored to the specific needs of the borrower.

Some ways that Non-Banking Financial Companies (NBFCs) play in helping small and medium-sized enterprises (SMEs) to grow are:

Access to credit: NBFCs provide SMEs with access to finance through loans and other credit facilities, which can be used to invest in new equipment, expand operations, or finance working capital needs.

Flexible lending: NBFCs typically have more flexible lending criteria than banks, which makes it easier for SMEs to secure financing. They are also more willing to consider the unique needs and circumstances of individual SMEs.

Specialist lending: Some NBFCs specialize in providing finance to specific sectors, such as microfinance or renewable energy, which can make it easier for SMEs operating in these sectors to access finance.

Specialized services: NBFCs also offer a wide range of other financial services, such as leasing, hire-purchase, and factoring, that can be of benefit to SMEs.

Credit insurance: NBFCs also offer credit insurance to SMEs, this helps them to mitigate the risk of default on loans and also helps them to secure more favorable terms on loans.

Mentorship and expert advice: Many NBFCs have a team of experienced professionals who can provide SMEs with mentorship and expert advice on financial management, business strategy, and other important issues.

What NBFCs look for while evaluating business loan applications?

When evaluating a business loan application, NBFCs will consider a range of factors to determine the creditworthiness of the borrower and the potential for repayment of the loan.

Here are 10 things that Non-Banking Financial Companies (NBFCs) typically evaluate to sanction business loans:

Creditworthiness of the borrower: NBFCs will assess the borrower’s credit history and credit score to determine their ability to repay the loan. This includes evaluating their past payment behavior, credit utilization, and outstanding debts.

Financial statements and cash flow projections: NBFCs will review the borrower’s financial statements, including balance sheets, income statements, and cash flow projections, to assess the borrower’s financial health and ability to repay the loan.

Business plan and industry analysis: NBFCs will evaluate the borrower’s business plan and conduct an analysis of the industry to assess the potential for growth and profitability.

Collateral and personal guarantees: NBFCs offer either collateral-free business loans or require collateral, such as property or equipment, to secure the business loan depending on the risk the borrower carries. They may also require personal guarantees from the borrower or other members of the business.

Debt service coverage ratio: NBFCs will calculate the debt service coverage ratio, which compares the borrower’s income to their debt payments, to assess the borrower’s ability to make loan payments.

Length of time in business: NBFCs will consider the length of time the borrower has been in business and the stability of their operations.

Business and personal tax returns: NBFCs will review the borrower’s business and personal tax returns to assess their income, expenses, and overall financial situation.

Business and personal credit scores: NBFCs will review the borrower’s business and personal credit scores to determine their creditworthiness and ability to repay the loan.

Repayment history on existing business loans: NBFCs will review the borrower’s repayment history on existing business loans to assess their past payment behavior and creditworthiness.

Ownership and management structure of the business: NBFCs will assess the ownership and management structure of the business, including the qualifications and experience of the key management personnel, to evaluate the potential for success.

In short, NBFCs will evaluate a business loan application by assessing the creditworthiness of the borrower, the financials of the business, the collateral provided, the business plan, industry and market analysis, management and ownership structure, time in business, debt-to-income ratio, the purpose of loan and other factors that may be relevant to the business loan application.

To get secured and unsecured business loan from an NBFC, you will need to gather the necessary documents like financial statements, tax filing returns, company registration certificates etc, submit a business loan application, and provide information about your creditworthiness, business history, and repayment history.

The NBFC will then use a proprietary algorithm to quickly and efficiently evaluate business loan applications. This is particularly beneficial for small and medium-sized businesses that need to access working capital quickly to determine whether they qualify for a business loan and what terms and conditions will be most suitable for your business.


NBFCs aim to balance the potential for growth and profitability with the risk of default, and make their lending decisions accordingly. It’s important for business owners to understand the evaluation criteria and to present their business loan application in the best possible light by providing complete and accurate information.

With the right preparation and a well-crafted business loan application, businesses can increase their chances of securing the funding they need to grow and succeed.

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