Although you may consider yourself an entity separate from your business, lenders do not, especially when your firm is small. That means that though your business’ credit score may differ from your score, lenders evaluate your personal profile before approving your loan application. The lines of demarcation are erased in cases of sole proprietorships and many partnerships where your personal credit score directly equate to your business credit score.
In India, credit scores provided by bureaus like TransUnion CIBIL, Equifax, Experian and CRIF High Mark range from 300 to 900. The higher your score is, the better are the chances of qualifying for a loan and securing favourable terms. This is because your credit score summarises your repayment history and indicates how you will handle credit in the future based on the past. Learn more about a good credit score for a business loan to bolster a business quickly.
How a 700+ credit score can get you a loan on affordable terms
A score between 750 and 900 speaks well of your creditworthiness and is the ideal credit score for a small business loan. Since credit scores evaluate parameters such as your past track record, credit utilisation ratio and your recent debt payment behaviour, a high score indicates diligence and sound financial management. A score of above 750 lends you a fair deal of negotiating power. That means that you can not only get a loan but also bargain for a lower interest rate and a longer tenor since repayment is assured in principle.
Additional Read: How to maintain a good business credit score
Obtain a business loan on your lender’s terms with a score of 650 to 749
While not excellent, a credit score ranging between 650 and 749 is nevertheless good. However, you lose the power to negotiate for a better deal, especially as you go towards the 650-mark. Scores above 700 should suffice to obtain a business loan without much hassle. If borrowing is not an urgent necessity, you can consider working on your credit score for a while and applying later to secure a more favourable rate.
Secure a loan after proving repayment abilities with a score of less than 650
Scores below 650 aren’t the best and can be termed as average, fair or even poor. You may even find that your lender requires that the minimum CIBIL score for business loan applications be equal to 650 and above. Similarly, business loan application procedures can be very stringent for those with bad credit, making it tough to secure funding. However, there are a couple of courses you can take.
You can step back and build your credit score and apply later when you are sure of obtaining a loan on cost-effective terms. This way, you avoid loan application rejections and unnecessary hard inquiries that cause your credit score to drop by a few points each time. However, if immediate funding is necessary, consider applying with a creditworthy business partner or proving repayment abilities by showing the presence of valuable assets that you can liquidate if push comes to shove. You can also opt for a secured loan instead of a collateral-free business loan.
Apart from your credit score, lenders also look into your business’ credit score or ranking. For example, Experian and Equifax provide business credit scores ranging from 0 to 100, with 100 being the maximum you can get. Similarly, CIBIL assigns a credit ranking ranging from 1 to 10 for businesses with a credit exposure of Rs. 10 lakh to Rs. 50 crore. Here 10 is the worst, and 1 is the best ranking you can get.
How much business loan do I qualify for with a good credit score?
With a good credit score, you can get access to the Bajaj Finserv Business Loan. Here you get funding up to Rs. 80 lakh on a collateral-free basis. The tenor is flexible, and you can borrow as per your business’ needs, in parts, with the Flexi loan facility. Here, you pay interest only on the portion withdrawn and can even choose to pay interest-only EMIs, which can decrease your EMIs by up to 45%.* You can apply with just a few documents, and your application gets approved in just 24 hours.
Finally, while a healthy credit score gives you a firm footing when applying for a business loan, obtaining funding depends on other parameters like your business’ turnover and your debt-to-income ratio. That’s why it’s also important to apply for only as much as you can repay. To get access to financing tailored to your personal profile, check your pre-approved business loan offer from Bajaj Finserv. Doing so gives you instant approval through a customised deal to boost your business.
Additional Read: Importance of business credit score
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