CIBIL Score Business Loan

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Credit Score is a three digit number given to every individual to know how good their credit history is. In India, the most important credit score that is known by all institutions is the CIBIL score. A CIBIL score, also known as credit score, is a summarised report of an individual’s payments of loans taken from banks and other financial institutions. This CIBIL score is an amalgamation of quite a few criteria’s such as the amount of loan taken, timely payment of interest, timely payment of principal, default amount and so on. Higher the CIBIL score, higher is your credit history.

The higher is a CIBIL score; it is easier to obtain a loan for business as it shows that the individual has a sound repayment history for past loans taken. The CIBIL score ranges from 300-900, 300 being the lowest and 900 being the highest. A CIBIL score is taken into consideration when one tries to avail a business loan. Usually, a score of 750 and above is considered safe while one is trying to secure a business loan.

More than half of the credit cards sanctioned have been sanctioned only on the credit score of the individual and no other qualities. This makes the process easier, faster and usually error-free as the credit score can be an important factor in the lending process.

Factors that affect a CIBIL Score for Business Loan

Factors that affect a CIBIL Score for Business Loan

As mentioned above, there are quite a few factors that are taken into consideration while your CIBIL score is being generated. Most of the factors that affect your CIBIL score are your hand, so ensure you follow and do the right things to get a good score. Some of the factors that affect a CIBIL score are

  1. Make Timely Payments – This is one of the biggest factors that affect your credit score. You want to ensure all your interest; EMI’s are paid on time or before the due dates. Ensure all your business repayments are done on time with no outstanding payments pending. Delayed past payments could lower your CIBIL score.
  2. Take Debt in proportion – This point essentially means that do not take on more debt than your business can handle. While this is an underlying saying in every business, ensure that your debt does not exceed the amount of your income. This could be a red flag while generating your credit report.
  3. Number of Loans – Taking loans for the necessarily required purpose is good but applying for too many loans could not be a good sign. Too many loan applications or rejected loan applications are viewed as a negative factor – leading to lower CIBIL scores. Only apply for loans you plan to utilize fully, have the repayment structure ready and are in need of it.
  4. Business Customers – One major element that could affect your credit score is how long a credit period is given to your customers. If the repayment from customers is for longer periods of time or unworthy, it could lead to a lower credit score.

5. Closing Old Credit Lines – Long credit relationships with banks and financial institutions are viewed as healthy practices. Hence, do not unnecessarily close old credit card limits or credit limits. Keep them open with minimal transaction and utilization.

How to check your CIBIL Score for your business loan?

At this point, you might be wondering how does one get a CIBIL score and how do you check it. The process of checking a CIBIL score is quite easy and can be done online without any hassle. To check your CIBIL score you can log onto the website – and receive your credit report. As per the RBI, every individual has access to a free credit report every year.

Once you have logged onto the website, you need to add certain details such as identification name, address proof. Once these details have been uploaded, a credit report will be generated for you. You can then use the credit report/ CIBIL score to avail a business loan.

A credit report can also be generated offline. For this process, you need to mail the required documents to the CIBIL address. Once the documents have been approved, you will be mailed your credit report.

What do lenders check for approving a business loan application?

  1. CIBIL Score and Report:It is one of the most important factors that affect your loan approval. A good credit score and report is a positive indicator of your credit health.
  2. Employment Status:Apart from a good credit history, lenders also check for your steady income and employment status. If you are a business owner, those details would be checked by the lender.
  3. Account Details:Suit filed or written off cases is carefully examined by lenders.
  4. Payment History:Lenders check for any default on payments or amount overdue cases, which might project a negative overview of your overall report.

 5. EMI to Income Ratio: Banks also consider the proportion of your existing loans when compared to your salary at the time of loan application. Your chances of loan approval get reduced if your total EMI’s exceed your monthly salary by 50%.

CIBIL Score for Business Loans

With fintech increasing and SME and MSME loans being granted in just 59 minutes, the process to scrutinise a loan application, study their history, know more about their business can become difficult. At this point, one factor helps to make the entire process easier. That is the CIBIL Score.

Think about your 10th std. exams and then getting admission into junior college. There are thousands of applicants, all with different traits and qualities, however, individual interviews cannot be taken of all. Hence there is a particular cut off above which students are chosen. A CIBIL score is similar to a cutoff.

Some loan companies have cut off above which only loans are sanctioned to borrowers. Since most of the business loan application process is now done behind a screen, through a robot, it is essential to have a good credit score to make it past the initial stage of the loan application process.

The business loan could be for inventory management, credit invoice or for expansion purposes, a credit score determines whether the loan can be sanctioned or no. The same process applies for Credit Card, Home Loan, Car Loan and so on. So essentially, a credit score or a CIBIL score can make or break your loan application.