Establishing a business and running it successfully requires proper planning, hard work as well as risk-taking ability. Entrepreneurs also require access to substantial capital in order to expand their business. Often, business owners apply for a business loan to avail the required funds. While processing a business loan application, lenders check the personal as well as the business credit score of the entrepreneurs. Credit score plays a vital role in deciding the loan amount as well as the interest rate levied on the business loan. Moreover, it also enhances the chances of loan approval. Therefore, if you are an entrepreneur looking forward to availing a business loan, it is essential that you understand all the aspects related to your CIBIL score for business loan.
CIBIL Score for Business
A credit score of a business is helpful in determining the creditworthiness of the business. Therefore, an organization with a good credit report is more likely to negotiate favorable terms with its lenders as compared to an organization with a poor credit report. The higher the credit score, the better is the repayment capacity of the organization. Hence, it is always advisable to boost your credit score for a business loan.
Also read the enhancement on CIBIL Score algorithm only at Finserv MARKETS
Factors affecting credit score for Business Loan
It is to be noted that any kind of savings or investments won’t affect your credit score. The major parameters that impact your credit score are mentioned below:
- Your credit history
- Utilization of credit
- Credit duration and mix
What are the Different Credit Score Ranges and What does it means?
The CIBIL score ranges between 300-900 and it is an important factor that determines your loan eligibility.
Below are the different ranges of a CIBIL score.
NA/NH: If you don’t have a credit history, your CIBIL score will be NA. This means you have never availed a loan.
350 – 549: A credit score in this range is considered to be a poor score. Most financial institutions would reject your loan application if you have a credit score in this range. Therefore, you must try to improve your credit score by making timely repayments and clearing outstanding dues.
550 – 649: CIBIL score in this range is considered to be average. Only a few lenders would provide you a loan with a credit score in this range. Moreover, they would think of you as a high-risk borrower and charge a high-interest rate.
650 – 749: If you have a credit score in this range, several lenders would offer you loans at a competitive interest rate.
750 – 900: CIBIL score in this range is considered to be excellent. Financial institutions will consider you a low-risk borrower and offer you loans at attractive interest rates. Moreover, if you have a credit score in this range, you can also negotiate with the lender to avail credit with more favorable terms.
In order to improve the chances of your loan approval, you must boost your credit score before applying for a loan. Also, make sure that you check CIBIL score before applying for a loan, it will give you a fair idea regarding whether your loan application will be accepted or not.
Read more about CIBIL MSME Rank
What is the Minimum Credit Score for Business Loan
If you are applying for a business loan without collateral than the ideal credit score should atleast 700. Whereas, if you are applying a secured business loan, than the ideal credit should be within 550 – 700. Both the conditions are applicable if you are applying for a business loan as a self- employed or salaried.
How are credit scores checked for Business Loan?
- It is important that you check your credit score before applying for a business loan. This will reduce the chances of rejection of your business loan application. However, it is to be noted that checking your credit score can hurt your actual score. There are two ways through which you can check your credit score, namely, soft checks and hard checks.
- Soft inquiries do not damage your credit score. Soft inquiries are requested by credit bureaus or Third Party authorized institutes.
- On the other hand, hard inquiries may damage your credit score. Hard inquiries are requested by banks or credit card companies.
Tips that can help you enhance your business credit score
- Make timely repayments
- Decrease your credit utilization ratio
- Dispute any errors and inquiries
Make timely repayments
If you fail to pay your bills on time, your credit score will be affected negatively. Therefore, it is always advisable to make timely repayments to avoid debt traps and keep your credit score intact.
Decrease your credit utilization ratio
- The credit utilization ratio is the ratio of credit used in relation to the amount of credit available. Credit scoring agencies analyze this ratio while determining your credit score. It is typically a good idea to keep the credit utilization ratio under 15%.
- In order to further decrease your credit utilization ratio, you can ask your credit card provider to increase your credit limit. Also, make sure you minimize the use of credit cards.
Also read how name change can affect CIBIL Score only at Finserv MARKETS
Dispute any errors and inquiries
- It is important to make sure that your credit report is accurate and up-to-date. If you happen to spot any kind of error on your credit report, it is essential that you ask the credit reporting agencies to dispute it. This can be helpful in improving your business credit score.
- Also, try to avoid hard inquiries and unpaid accounts as they negatively affect your credit report.
These tips can help you improve your credit score significantly. A high credit score will allow you to avail a business loan with a competitive interest rate. On the other hand, business loan for low CIBIL score comes with a considerably higher rate of interest. With leading financial institutions, you can easily apply for business loan online from the comfort of your home. In order to reduce the rejection chances of your business loan application, you can calculate your loan eligibility beforehand with the help of an online business loan eligibility calculator.
Bajaj Finserv Business Loan has simple eligibility criteria, flexible repayment options and other lucrative features such as less processing fees, no hidden charges, instant approval and quick disbursal of the loan amount.
You can avail a Bajaj Finserv Business Loan and give your business idea a much-needed platform. Lastly, do not forget to read the terms and conditions of the loan agreement carefully before signing it. This can help you avoid any inconvenience in the later stage.
Also, read about the benefits of business loan and check your business loan EMI with the help of Business Loan EMI calculator.
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