Choosing the right financier

With growing technology and widespread access to financing options, availing funds for business activities or for personal usage has become quicker and easier. Financing increases the spending power of individuals, it pushes money through the economy and accelerates business activities. Retail loans enable the masses to make purchase of previously unaffordable items with relative ease. On the other hand, corporate loans help provide small and large business the funds required to scale businesses and serve greater chunks of population. In addition, the enhanced economic activity promotes growth in employment and social mobility of the classes. Thus, financing is a means to reduce inequality among the purchasing powers of the different strata of society. So who provides these loans and financing in our economy?

There are different types of financiers in the financial services industry, they include:

1. Banks: Banks are the oldest financial institutions; they have been providing finance for business as well as retail loans. Very closely governed by various regulators, like RBI etc, they are known for their stability and conservative approach to financing.

2. NBFCs: NBFCs or Non-Banking Financial Companies are registered under the Companies Act and are involved in the business of loans and advances. They are also governed by various entities, like RBI, basis their area of operation. There are known for their nimbleness and focused approach towards lending. A fast growth segment, NBFCs are constantly increasing their reach towards the borrowers in the market.

3. Unorganized / Local Lenders: In earlier times, local lenders were the primary source of finance. The lending would be based on the personal relations of the borrower and the lender. This type of borrowing used to be charged with a high interest rate, and is still a prominent part of many small towns and villages.

Out of the available options for financing, banks and NBFCs are the more prominent and organized ones in the market as far as business or retail loans are concerned. NBFCs perform similar functions to a bank but there are a few differences between the them. While an NBFC provides lending services and may or may not accept deposits, a Bank does the same and in addition it provides CASA facilities to their customers. CASA facilities stand for current account and saving account facilities. Generally, opting for an NBFC for a loan means quicker process and approval. This is primarily because the licensing agreements as well as terms and conditions are liberal for an NBFC as compared to a bank, hence, they are nimble in nature and quick to respond.

NBFCs were established to provide finance to financially excluded sections of the society, but with growing business opportunities which require faster finances, many prefer to borrow money from an NBFC instead of a bank. The interest rates of an NBFC could be little higher than that of a traditional bank, this is a small price you pay for easier and faster loan processing with simpler documentation.

Now that we know the broad differences, there are some additional points to keep in mind when choosing the right financier:

1. Proximity: When it comes to borrowing money, it is advisable to approach the financier that is located in your area of business or residence. This saves time on travelling for your loan related work. Also, it is easier to approach the financier in case of any problem or emergency. Though, with the advent of digital channels for fulfillment and relationship management, this factor is not considered very important any more.

2. Compare product features: Product features include the rate of interest, tenure and approval process. Do not settle for the first financier that you see. Compare what different financiers have to offer and choose the one most suitable for you. It is important to compare the interest rates and also see the tenure offered. The rates and tenure vary according to the amount of loan; hence it is advisable to visit a couple of financiers before taking your decision.

3. Eligibility criteria and documentation also vary from financier to financier. The basic KYC documents are required by all financiers, but any additional documentation requirement differs based on the loan type and the policies of the financier.

4. Approval timeline is another important factor to be considered. If you are in an urgent need of money, you will not like to waste time on excessive documentation and a long drawn approval process. Thus, check the past record of the company and see how soon the approval is usually received. For a quick loan approval, choose a company which asks for less documentation and has a quick processing for the same.

5. Compare Digital capabilities: With emerging technology and growing digital capabilities, it has become essential to compare and learn about different services provided by the financier. Check if the services provided by the company include user friendly website or any other digital service facility. Most applications might be available on the mobile making it easy for you to pay the EMI as well as check your outstanding balance. Also check for the type of business support provided by the company. How do they take you through the entire process? Check for guidance mechanism as and when you are being explained their terms and conditions. One of the most important factors is the payment option. Check for multi-channel payment option for the repayment of loan. Does the company offer a web / mobile application for payment of EMI? A multi-channel payment option should always be preferred.

6. Customer service – Most financiers these days strive to build long term relationships with their customers. Compare the services provided by the company for a new customer. Is it website/email based or do they have a call center? Does the lender offer a physical self-help kiosk or everything is digital? Are they always available for help? Check for the type of customer services offered by the company, and decide if it suits the level of interaction you prefer.

To gain complete knowledge about the turnaround time and approval process the applicant should check the online reviews posted by customers. Further, it is advisable to scan recent news about the financier, negative news like adverse action from the regulator should be a red flag. This will give an insight into the financier and you will know what you are in for.

Choose the financier with the most positive results from your research. For the financier, you should not be a one-time customer; they should aim to build a fruitful relationship with you. This can be ascertained with a little online research and comparison among different lenders. Do not settle for the first company that comes your way. Ensure that the terms and conditions of the financier are suitable to you and then make the big decision for your financing.