Updated on: Jul 13th, 2021
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4 min read
Small and medium enterprises (SMEs) now have a plethora of options for receiving financing to keep their businesses going or even expand their business. Most of the banks offer special schemes for SMEs. Similarly, many non-banking financial companies (NBFCs) also offer lines of credit to SMEs.
How should you choose the revolving line of credit that is right for you? Is it better to go with a trusted bank, or should you try your hands with an NBFC? Here is a summary of each of the options to help you choose the right line of credit.
A line of credit for a business is a revolving credit facility where a borrower is issued with an agreed amount of capital for a specific duration. The applicant can use the capital as and when required. There is no need for the business owner to withdraw the entire loan amount at once.
In this case, the interest rate is applied only to the withdrawn amount and not to the entire loan amount sanctioned. Once the principal amount is repaid, the business owner becomes eligible to apply for the revolving credit.
There are various factors one must assess before choosing a lender for revolving credit.
Small and medium enterprises (SMEs) have various financing options such as banks and NBFCs. Factors to consider are interest rates, credit score requirements, eligibility criteria, documentation, and policies. A revolving line of credit is a flexible facility where interest is applied only to the withdrawn amount, not the sanctioned loan. Banks often have stricter policies and higher credit score requirements compared to NBFCs offering a more lenient approach.