Your business credit score and your business credit report reveal your business’ creditworthiness, and that’s why they matter when you apply for a business loan. This report or score is especially important when your business is applying for an unsecured loan, where you are not attaching any business or personal asset as security. In such cases, the only way a lender can judge how likely you are to repay your loan is by analysing your credit history and past repayment behaviour via your business credit score or report. To further understand why your business credit score and report matters, take a look at their components.
Components of your business credit report
- Payment history related to business credit card/s
- Payment history of past or current business loans and other debts
- Credit relationship with suppliers
- Snapshot of credit availed by the business in the past
- Other information such as nature of the business, promoter details and industry trends related to your business
All this information is available to lenders in the form of a credit report, which is summarised in your business credit score. There are different credit bureaus in India, such as CIBIL, Crif High Mark, Experian and Equifax. All these agencies have different methods of scoring your business’ credit history. For example, Crif High Mark scores businesses between 300 and 900 with 700 being a good business credit score. CIBIL doesn’t give a business credit score, but prepares a company credit report (CRR) and also has a CIBIL Rank. This rank is only given to companies who have a credit exposure from Rs. 10 lakh to Rs. 10 crore. A high rank is between 1 and 4. Lenders use these reports and CIBIL scores to analyse which businesses to give credit to and at what rate of interest.
Since your business credit report outlines how you have used and repaid debts in the past, it allows lenders to decide how efficiently you will meet your credit obligation on the new loan you are currently applying for.
Here’s how your business credit report impacts your application for a new loan
- It reveals your ability to repay the loan based on your credit history
- It determines the interest rate you will be charged
- It reveals your current debt obligations
- It directly affects your chances of approval
If you find that your credit score is not up to the mark, there are many ways to remedy the situation.
How you can improve your business credit report and score:
- Repay old debts and make timely payments of new debt
- Acquire limited debts and make limited applications for new credit
- Pay your business’ creditors on time
- Check to see if there are any discrepancies in your credit report and get them corrected
- Keep your credit utilisation ratio at 25%
- Don’t use personal finances for business needs
Your credit score may also be low if your business does not have a credit history. In such cases, taking a small business loan that you can repay easily and on time may help you build one.
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