When offering you a loan, lenders look for a CIBIL score of at least 750 to approve a Business Loan with favourable terms. But if your score is lower than that, let's say in the 650–749 range, you’re not out of options. In this blog, let's explore the multiple loan options for business growth, the significance of CIBIL scores when availing of a Business Loan and tips on enhancing your creditworthiness to boost your loan approval chances. So, let's get started!
Can I Still Get a Business Loan for Low CIBIL Score?
Yes, getting a loan with a low CIBIL score is possible. However, the process of getting one can be a bit challenging, but worry not, let's understand your options with the help of a credit score ranges table:
|
CIBIL Score Range |
Credit Rating |
Loan Options Available |
Remarks |
|
300 - 550 |
Poor |
|
Minimal options and lenders consider you a high-risk borrower |
|
550 - 650 |
Average |
|
May face higher interest rates and stricter terms |
|
651 - 749 |
Good |
|
Moderate approval chances of terms may vary |
|
750 - 900 |
Excellent |
|
High approval chances with favourable terms |
Importance of CIBIL Score for a Business Loan
The following highlights the importance of CIBIL scores on business loans:
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Reflects Your Credit History: Your CIBIL score reflects your credit history, showcasing your past repayment behaviour. Lenders utilise this information to assess your repayment capabilities.
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Improves Chances of Loan Approval: A high CIBIL score enhances the probability of approval, indicating to lenders that you are a responsible and trustworthy borrower.
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Better Access to Favourable Terms: An excellent CIBIL score enables you to secure funding for your business from financial institutions at low interest rates and favourable repayment terms.
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Enhances Creditworthiness: Maintaining a high CIBIL score establishes credibility and enhances your prospects of obtaining additional loans in the future.
What is the Ideal CIBIL Score for Loan Approval?
A CIBIL score for a Business Loan typically ranges from 300 to 900. This score is considered for the proprietor or the primary applicant of the Business Loan. The credit score is based on your credit history and financial stability.
You need to have a good CIBIL score of 750 and above to avail of a Business Loan at favourable interest rates. Even companies or commercial establishments have specific credit reports to highlight their creditworthiness.
Also Read: How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?
Impact of CIBIL Score on your Business Loan Applications
The following points highlight the impact of your CIBIL score on the loan approval process for Business Loans:
Loan Approval
The lender usually accepts a good credit score when approving your loan, as it indicates you are a low-risk borrower. Allowing you to get the loan approvals for both unsecured and secured loans.
Competitive Interest Rates
An excellent CIBIL score translates as a low interest rate which can reduce your overall cost of borrowing.
Loan Amount and Tenure
A strong CIBIL score enables you to avail of a high loan amount and help you get favourable loan terms.
Loan Rejection
A low CIBIL score can lead to rejection or require you to submit a solid business plan, document for financial stability, co-applicant bank account details etc.
Strict Loan Terms
If you have a low CIBIL score, the lender may offer you a loan at higher interest rate with shorter repayment tenure.
Minimum CIBIL Score
The minimum credit score required for getting a Business Loan is 750 and above. However, some lenders may consider a lower credit score, but it may come with some terms and conditions.
Consequences of a Low CIBIL Score on Loan Terms
A poor CIBIL score can lead to several disadvantages, including:
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Loan Rejection: Lenders may not be willing to offer loans to business owners with a low CIBIL score, increasing the likelihood of loan or credit card application rejections.
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Collateral/Security: If you have a low credit score, you may be required to opt for secured business loans in exchange for putting an asset as collateral or security.
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High Interest Rates: A low CIBIL score indicates a higher risk of non-repayment, which may lead lenders to charge a higher interest rate on your Business Loan.
Tips for Boosting Your Business’s CIBIL Score
While the CIBIL score is one of the key identifiers of creditworthiness, practising responsible credit management and other measures can help improve the score. Here are the tips you can follow:
1. Timely Payments
You must demonstrate financially responsible behaviour through the timely repayment of all your loan EMIs. You should avoid holding off on clearing your debts until the very last day. The ideal time to settle your obligations and invoices is well before the deadline.
2. Avoiding Multiple Lenders
Avoid applying for loans from many lenders to maintain the minimum CIBIL score for MSME loans. Additionally, if you just had your Business Loan application denied, it only makes sense to refrain from applying for a term loan or any other kind of Business Loan for at least a few months.
Applying for a Business Loan multiple times affects your CIBIL score and your business's financial health, leading to bad credit. It reflects poorly on you by making you seem like a credit-hungry and potentially risky borrower.
4. Decide on an Appropriate Loan Term
Choosing an appropriate loan tenure gives you better control over payments, reducing the risk of default. Longer tenures offer lower EMI amounts, providing ample time to organise finances.
5. Maintain a Balanced Credit Mix
Maintain a diverse credit mix to enhance your CIBIL score, as credit agencies assess a borrower's capability to manage various types of credit. A well-balanced combination of secured and unsecured loans contributes to a higher credit score.
Also Read: Key Difference in Business Credit Score and Personal Credit Score
How Does a High CIBIL Score Facilitate Quick Loan Approval?
A strong CIBIL score indicates excellent creditworthiness, assuring the lender that you will repay the loan on time. Consequently, financial institutions expedite the loan processing for individuals with high credit scores.
Conversely, those with a low CIBIL score may encounter a more prolonged loan disbursal process, requiring the submission of numerous documents and the involvement of guarantors.
What Are the Different Uses of a Business Loan?
Here are different uses of a Business Loan:
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Business expansion
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Maintain healthy cash flow
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Consolidate your existing loans
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Purchase machinery or equipment
How to Apply for a Business Loan?
Here is a simple step-by-step procedure for a successful loan application you need to follow to apply for a Business Loan online:
Step 1: Visit your lender’s website and click on the ‘Apply Now’ button.
Step 2: Fill out the required details in the application form.
Step 3: Select the ‘Submit’ button.
Upon successful verification, the required funds will be disbursed to your account.
To Conclude
The minimum CIBIL score for a Business Loan is 750 and above. You can follow the above-mentioned steps to improve your CIBIL score and get the best loan terms as well as favourable interest rates. Remember, a good credit score can unlock various growth opportunities for your business. So, go ahead and apply for a Business Loan today!
Frequently Asked Questions
Can I get a Business Loan with a low CIBIL score?
Yes, you can get a business loan with a lower credit score. However, the option for selecting lenders can be limited.
Is peer-to-peer lending a good option for low credit score?
Yes, peer-to-peer lending platforms often have more lenient eligibility criteria for those with low CIBIL scores.
Can I get a loan with a 500 CIBIL score?
Yes, you can get a loan with a 500 CIBIL score, but the interest rates attached to it can be higher.
What are the factors influencing your credit score?
The factors that influence your credit score include payment history, amounts owed, length of credit history, new credit, and credit mix.
What are the common eligibility criteria for a Business Loan?
Common eligibility criteria for a loan for business include age, which is usually between 21 and 65 years old, a minimum credit score typically 750 or above, and a certain level of business vintage, often 2-3 years in operation.
What is a CIBIL score?
The CIBIL score is a three-digit number, ranging from 300 to 900, representing an individual or business's creditworthiness based on their financial history.
What is the most popular credit bureau in India?
CIBIL manages the credit files of over 600 million individuals worldwide, making it the most popular credit bureau in India.
Do I need a co-signer if I have a low credit score?
Yes, you may require a co-applicant/signer with a healthy credit score for the approval of the loan.
What is an ideal credit score for availing of a loan?
Various financial institutions require you to have a credit score in the range between 750 and 900 for seamless borrowing experience.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply