CIBIL Score for Business Loans – How to Improve it

CIBIL Score for Business Loans

The CIBIL score or credit score of an individual plays a crucial role in any credit approval process. For example, a candidate with an excellent credit score has a higher chance of getting approval for a business loan than a person with a low credit score.

In this article, we will talk about ways to improve the credit score to increase your business loan eligibility.

Tips to Improve Your Credit Score 

Customers can follow these tips to enhance their credit scores and ensure a hassle-free loan approval:

  1. Paying bills on time

A clean credit report favours any business at all times, especially when it comes to opting for a loan. Usually, failing to repay any debt is considered bad credit behaviour, and the data remains on the person’s credit report for as long as seven years.  Hence, one should always ensure to pay their monthly instalments and credit bills on time to improve their credit score.

  1. Maintaining a low credit utilisation ratio

A high credit utilisation rate negatively impacts a person’s CIBIL score. This is because lending institutions believe that the candidate is utilising the credit amount to overcome financial stress which is an unhealthy financial behaviour. Using less than 30% of the total credit limit is considered to be a disciplined credit utilisation. Business entities can maintain a low ratio in the following ways –

  • By repaying their dues within the tenure
  • Reducing credit card utilisation
  • Increasing the present credit card limit
  • By becoming an authorised user 

Further, business owners can reduce their credit utilisation ratio by keeping the old and unused credit cards active in case they do not charge an annual charge. This also helps enhance the credit history.

  1. Make sure to avoid multiple loan inquiries

Ensure not to make multiple inquiries about any credit forms from multiple financial institutions. Every time a person inquires for any form of credit, it gets registered in his/her credit report, and numerous instances of credit inquiries can negatively affect the credit score.

  1. Opting for the right combination of secured and unsecured loan

Secured loans affect the credit score positively as they are considered to be of low-risk. On the other hand, unsecured loans, such as car loans, personal loans, etc., do not require any asset to be kept as collateral. Hence, financial institutions consider such loans to be of higher risk. These credit forms may negatively impact a person’s credit score. Hence, individuals should try their best to minimise the unsecured components from their credit reports to improve their credit scores.

  1. Check your credit report

When a person opts for a business loan, the lending partners will assess the application based on three parameters, down payment, steady income source and the credit history. Hence, it is a wise decision to check the CIBIL score before applying for any credit. This will help the applicant get a clear idea of what is hurting the credit score and report the errors to the credit bureaus, if any.

Nevertheless, it is very difficult to say the exact figure by which the credit score will boost by following these methods. However, if a candidate keeps practising these healthy financial habits, he/she is bound to see positive results with time.

What is a Good Credit Score

The credit score is a three digit number ranging from 300 to 900 points. Ideally, a credit score of 700 or more is considered a decent credit score for business loans. Further, anything more than 800 is considered to be an excellent credit score by lending institutions. Financial institutions consider individuals with high credit scores low-risk applicants and have higher chances of getting attractive credit offers. However, if a person has a credit score of anything less than 675, he/she must try to improve the score in order to reap the maximum benefits of any credit instrument.

Benefits of a Good Credit Score

A person with a decent credit score can enjoy the following benefits:

  • A good credit score allows financial institutions to approve a loan application within a short turnaround time. This is because they consider such applicants to be of low risk based on their credit history.
  • A good credit report attracts a higher borrowing quantum. Hence, those who have a decent credit score have high chances of getting a sizable borrowing limit in time of a financial emergency.
  • Further, in case a person has a good credit history, financial institutions may offer credit facilities at low interest rates. Lower interest rates reduce the monthly instalments and the total payable interest, lowering a borrower’s liabilities.

How Much Business Loan Amount Can an Individual Get with a Good Credit Score

With a decent credit score, a candidate can get as much as Rs. 50 Lakhs without any collateral. Further, one can choose a repayment tenure as per their financial capabilities and can also borrow in parts by opting for the Flexi loan facility.

How to Apply for a Business Loan in India

Willing borrowers can follow these simple steps to opt for a business loan in India:

Step 1: Visit the official website of the preferred financial institution and fill up the application form with all personal and business details.

Step 2: Following this, the list of loan offers will appear on the screen from where the applicant has to choose his/her preferred lender.

Step 3: Enter the required loan amount and specify the repayment tenure.

Step 4: Next up, the applicant needs to upload the scanned copies of all the documents asked by the lender.

Step 5: On successful completion of the application and verification of the documents, the lender will disburse the loan amount within a minimum turnaround time.

To sum it up, candidates opting for a business loan to fund their business-related expenses can practise the tips mentioned above to improve their credit scores for a business loan. This would ensure that they obtain their required loan amounts to fund their expenses and manage their finances without any burden.