Updated on October 4, 2023
The key parties to a loan are the lender and the borrower. While the term borrower is quite common and is used in daily use, given here is the meaning of borrowers and related details of this term.
Meaning of Borrowers
A borrower refers to an individual or entity that obtains funds or assets from a lender with the understanding that these funds or assets will be repaid in the future, typically with interest. Borrowing is a fundamental aspect of personal finance, business operations, and economic growth in a country.
Types of borrowers
The broad categories for classifying borrowers are mentioned below.
Individual Borrowers – Ordinary citizens who seek loans for personal purposes, such as purchasing a home, buying a vehicle, funding education, or covering unexpected expenses.
Business Borrowers – Companies, partnerships, or sole proprietors who borrow capital to support their business operations, including starting, operating, expanding, or improving their enterprises. Business loans address diverse needs like working capital and equipment financing.
Government Borrowers – The Government itself borrows funds through various financial instruments like bonds and treasury bills. These funds are used to finance public projects, and infrastructure development, and meet budgetary requirements for the benefit of the nation.
What are the sources of borrowing?
Banks – Commercial banks, as major lending institutions, offer a diverse range of loan products to individuals and businesses. They assess borrowers’ creditworthiness and determine loan interest rates based on the borrower’s profile and loan purpose.
Non-Banking Financial Companies (NBFCs) – NBFCs play a significant role in lending, catering to individuals who may not meet traditional banks’ strict criteria. They provide various loans, including personal loans, vehicle loans, and housing loans.
Government Institutions – Government-owned financial institutions like the National Housing Bank (NHB) and the Small Industries Development Bank of India (SIDBI) offer specialized loans to promote housing and support small and medium-sized enterprises (SMEs).
Peer-to-Peer (P2P) Lending Platforms – P2P lending platforms are gaining popularity in India. They directly connect borrowers with individual investors willing to lend money, providing an alternative source of funding, especially for personal loans.