Commercial loans which include business loans, are emerging as a significant economic growth driver in India. A business loan in India can be useful for funding your ideas, expanding your office space, hiring people etc. India has abundant resources and a growing population, which makes it an ideal place to conduct business. Depending on the requirements of the client, many forms of business loans are offered.
The need for MSME loans is increasing as the business sector grows. The MSME loan is given to Micro Small or Medium Enterprises, as the name implies. For start-ups looking to grow or finance their ongoing operations, this kind of loan is the perfect choice. Additionally, MSME loans in India can be used to increase operating capital, purchase inventory or equipment, engage new employees, and pay for legal fees to market the services.
In case of business loans, to decide on creditworthiness there might be two types of CIBIL checks; CIBIL rank for businesses and CIBIL score for individuals. Either one of these or both are checked for deciding on the eligibility of the borrower before sanctioning a loan. It is ideal to have a high CIBIL rank and a high CIBIL score to have a good chance of getting their loan sanctioned. Read on to find more about CIBIL rank and CIBIL score.
There are four credit agencies in India namely TransUnion CIBIL, Experian, CRIF High Mark, and Equifax. Here we are giving example from TransUnion CIBIL as the credit agency for better understanding.
An individual 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 likelihood of having your credit facilities granted increases with a high credit score. The three-digit score is calculated using information on the loans and credit card accounts that have been used, as well as payment history, remaining tenure under each facility, and other factors.
Although certain lending institutions may deem it to be less than suitable, an individual CIBIL score of less than 650 can be referred to as an average score and may lead to non-approval of your Business Loan. The minimum CIBIL score for Business Loans required by most of the banks and NBFCs is around 700. If the score is below this, getting a loan can be difficult. Most of the banks would have rigorous application eligibility requirements, and funding would become a problem. With a low CIBIL score, while approving the loan application, some lending institutions might not provide a large loan amount. Some lenders still may offer Business Loans for low CIBIL scores (slightly less than 700) by charging higher interest rates due to the risk involved with the profile. Simply conduct in-depth research of all lenders to determine which is the best.
To solve cash flow problems, rent a factory, or buy manufacturing software, businesses could require a substantial sum of money. A good credit score shows that you can be trusted with borrowed money, giving you the power to request a bigger loan amount. As a result, applying for a loan is extremely challenging for business loans with a low credit score.
Also Read: Need A Personal Loan, But Have A Low CIBIL Score? Here’s How to Avail One
A CIBIL commercial report emphasises a company's creditworthiness in the same way that a CIBIL score indicates an individual's creditworthiness. Considering the data gathered from banks and other NBFCs, a CIBIL commercial report is a thorough assessment of an organization's financial standing. This thorough analysis is also widely used to assess a company's creditworthiness when it applies for a business loan.
CIBIL rank or a commercial credit score (CCR) is like CIBIL score for individual. It presents a credit summary and history for the company. Like how a CIBIL score has a range of 300–900, a CCR has a range of 1–10, with 1 representing the highest attainable rank. Businesses with credit exposure between 10 lakh and 10 crores only get this rank. The closer its credit rank to 1, the higher your company's chances are of obtaining a commercial loan with the best possible offer. The minimum CIBIL score for a Business Loan i.e., minimum CIBIL rank is one of the most crucial eligibility criteria if one wants to qualify for a Business Loan. So, ensure that you have a good CIBIL rank as getting a Business Loan with a low CIBIL score or rank can be difficult.
Also Read: What is the Role of CIBIL Score in Credit Rating in India
The borrower's financially responsible behaviour is demonstrated by their timely repayment of all debt. Additionally, regular debt repayment within the due date has a beneficial effect on the CIBIL score. It is advised that a customer should not hold off on paying their debts until the very last day. The ideal time to settle your obligations and invoices is well before the deadline.
Avoid applying for an MSME loan from many lenders to maintain a minimum CIBIL score for MSME loan. 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 will only have a negative impact on your CIBIL score and is not healthy for creditworthiness. It reflects poorly on you by making you seem like a credit-hungry and potentially risky borrower.
By choosing a proper credit term, we have more control over how we handle our payments and lower our chance of defaulting on them. The EMI amount that will be required to pay decreases as the loan tenure increases, allowing us plenty of time to organise our finances and secure the money. But also, with a longer tenure you have to pay more interest on the loan. So be careful when choosing a tenure to make sure you can honour all the payments in a timely manner. This puts you on the fast track to a higher CIBIL score and gives you the advantage of securing a loan quickly.
The credit profile should have a healthy balance of secured and unsecured loans (also called as credit mix)., This demonstrates that you are more creditworthy and have expertise managing both sorts of loans. While home loans and auto loans are secured loans, business loans and credit cards are unsecured in nature.
To summarize, you may need to have a credit score of at least 700 to obtain a Business Loan easily. Adopting responsible credit practices and finding the best lender to suit your requirements are equally important.
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