Why Business Loans Are a Goldmine for NBFCs

Business loans are the lifeline of India’s MSME ecosystem — and NBFCs are uniquely positioned to deliver them better, faster, and more flexibly than traditional banks. As demand for hassle-free credit grows, NBFCs have the opportunity to redefine business lending for millions.

Key Takeaways:

• Business loans are in high demand, especially among MSMEs and new-age entrepreneurs.

• NBFCs can leverage digital onboarding, faster underwriting, and unsecured lending flexibility.

• Customizing loan products for specific industries improves adoption and repayment behavior.

Let’s break down how NBFCs can win in the business loan market — and what practices to follow for success. 1. Why Business Loans Matter for NBFCs

With over 63 million MSMEs in India, demand for working capital and expansion funds is surging. Business loans offer NBFCs a scalable product line to tap into underserved borrowers — especially where banks fall short.

2. Top Use-Cases for Business Loans

NBFCs should tailor their offerings based on real-world use cases:

• Working capital management

• Equipment or machinery purchase

• Inventory stocking before peak seasons

• Franchise or branch expansion

• GST or tax compliance bridge loans

3. Key Advantages NBFCs Offer Over Banks

NBFCs have significant edges when offering business loans:

• Faster Processing: Minimal documentation and instant decisioning

• Flexible Eligibility: Income surrogates and credit scores adapted to borrower types

• Custom Tenures: Structured EMI plans for seasonal businesses

• Digital Journeys: Onboarding via mobile, WhatsApp, or embedded APIs

4. Risk Management & Loan Protection

To reduce defaults, NBFCs should:

• Bundle loan protection insurance (life, health, accident) to cover critical risks.

• Use AI/ML to assess alternate credit scores and cashflows.

• Offer flexible repayment structures and top-up options.

5. Regulatory Checklist for Business Loans

Before launching or scaling your business loan portfolio, NBFCs must:

• Maintain minimum Net Owned Funds (₹10 Cr+)

• Adhere to RBI’s Fair Lending & Outsourcing Guidelines

• Conduct KYC, KYB & AML checks as per mandate

• Ensure accurate disclosures and capital adequacy

6. The Future: Embedded Business Lending

With APIs and embedded finance partnerships, NBFCs can:

• Co-lend or distribute loans through fintechs and marketplaces

• Plug into ERPs or POS systems for direct disbursal and collections

• Deliver contextual credit — when and where the user needs it
  

Aspect	Key Insight
Target Borrowers	MSMEs, self-employed, retail shop owners
Loan Ticket Size	₹50,000 to ₹50 Lakhs
Popular Use Cases	Working capital, inventory, expansion, vendor payments
Competitive Advantage	Fast approval, less paperwork, digital journeys
Risk Control	Loan insurance, data-driven underwriting
Regulatory Essentials	NOF, governance norms, fair lending guidelines
Tech Integration	Embedded lending, API-based distribution, digital KYC
Repayment Models	EMI, bullet, seasonal repayments
Product Variants	Term loans, line of credit, invoice discounting
Future Trends	Co-lending, embedded lending, alternate credit scoring

Conclusion: NBFCs Must Own the Business Loan Space

India’s business loan market is ripe for disruption — and NBFCs are leading that change. With agile tech, customer-centric models, and embedded protection, NBFCs can create a profitable, sustainable loan book while enabling India's entrepreneurial dream.