business loan for low cibil score

What is Minimum CIBIL Score Value Required for Business Loan

December 27, 2022 • 6110 views

A Business Loan plays a vital role in fostering economic growth for MSMEs in India. They serve as a crucial financial tool to support diverse business requirements like expansion, hiring, inventory purchases, and marketing.

To secure these loans, meeting specific eligibility criteria is essential, including maintaining the minimum CIBIL score for a Business Loan. This blog explores the significance of CIBIL scores when availing of a Business Loan and provides tips on enhancing your creditworthiness to boost your loan approval chances.

CIBIL Score Importance for a Business Loan

The following highlights the importance of CIBIL scores on Business Loans:

  • 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.
  • Improves Chances of Loan Approval: A high CIBIL score enhances the probability of loan approval, indicating to lenders that you are a responsible and trustworthy borrower.
  • Better Access to Favourable Terms: An excellent CIBIL score enables you to secure a Business Loan from financial institutions at low interest rates and favourable repayment terms.
  • 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.

You need to have an ideal 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. The same has been explained further.

Also Read: How to Improve CIBIL Score to Get a Loan at Lower Interest Rates?

CIBIL Commercial Report or Rank for Businesses Loan

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 comprehensive 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 individuals. It presents a credit summary and history for the company. Just like a CIBIL score, a CCR has a range of 1–10, with 1 representing the highest attainable rank.

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 well as a good credit score.

Impact of Your CIBIL Score on Business Loan Applications

The following points highlight the impact of your CIBIL score on Business Loan applications:

1. Consideration for Small Businesses

Small businesses, often with limited credit histories, rely on CIBIL scores to showcase their creditworthiness, especially when lacking a prior relationship with a financial institution.

2. Insufficient Financial Information

New or small-scale businesses may lack comprehensive financial data. In such cases, loan approval decisions are inclined to consider CIBIL scores.

3. Collateral Requirements

Most unsecured Business Loans do not require you to provide any collateral to avail of the loan amount. However, it is important to maintain a good credit score to be eligible for Business Loans at low interest rates.

4. Loan Terms Negotiation

A higher CIBIL score enhances your chances of Business Loan approval and empowers you to negotiate competitive rates, favourable repayment options, and other terms.

How Does a High CIBIL Score Facilitate Quick Loan Approval?

A high 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.

Consequences of a Low CIBIL Score on Loan Terms

A poor CIBIL score can lead to several disadvantages, including:

  • 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.
  • 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.
  • 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 important identifiers of creditworthiness, there are different ways to improve the score. Here are the tips you can follow:

1. Timely Payments

You must demonstrate financially responsible behaviour through timely repayment of all debt. 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 will only hurt 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.

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 ReadKey Difference in Business Credit Score and Personal Credit Score

How to Apply for a Business Loan Online?

Here is a simple step-by-step procedure 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!

Disclaimer

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

poonawalla fincorp team

Poonawalla Fincorp Team

We are a team of expert writers and editors passionate about providing our readers with authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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