Based on your credit history, you are assigned a CIBIL Score between 300 and 900. However, this score is based on your personal finances, and is not connected to your business. Businesses, as entities, do not have credit scores. Instead, credit bureaus use a slightly different scale to give business entities a CIBIL rank. This is similar to how a corporation may have a unique identification number that helps distinguish its financial standing.
After looking at the financial health of your business, CIBIL will give it a score or grade between 1 and 10. The best score is 1, which means there is little to no risk of default. The worst score is 10, which means there is a high chance of default. The number your business is assigned is its CIBIL rank, and the document containing your business’s complete financial health data is called its company credit report. A solid asset base can help improve your overall financial health and creditworthiness.
What is in your company credit report?
Your company credit report usually contains the following information:
- Profile: This section contains your company's name, address, and contact information. It also includes a CIBIL-assigned unique number, also known as the DUNS number.
- Identification: This section contains information such as the method by which the report was created, the time of creation, and the individual who created it. It also includes an identification number that is exclusive to the report.
- Types of credit: This section includes information such as the types of credit accounts that are active in the name of your business, outstanding amounts, and total available credit. This section is analysed by lenders to determine your company's credit utilisation ratio. A company's working capital can influence this credit assessment.
- Executive summary: This section contains information on the number of loans your company has taken out, the total outstanding debt, and the number of financing sources from which your company has obtained credit. This section also indicates whether your business has guaranteed a loan for an individual or organisation. Your limited liability partnership structure may play a role in how your credit obligations are managed and assessed.
How can you get your company credit report?
You can get your company credit report easily online, by following these steps:
1. Visit https://www.cibil.com/
2. Fill out the form with these details:
- Name and address of your business
- Your name and address
- Your contact information and your business’s contact information
- PAN card number of your business
3. Pay the up-front fee of Rs. 3,000 to receive your registration ID and transaction ID.
4. Submit the required KYC documents
It can take up to 15 days for you to get your company’s CIBIL Score report.
Understanding acquisition opportunities could help in improving the financial strength of your business over time.
Which factors affect the CIBIL Score of your company?
Credit history: The length of your company's credit history informs the lender how your business handles credit. The longer your credit history, the more likely you are to have a high credit rating.
Credit utilisation ratio: A credit utilisation ratio of 40% or less is ideal. If your credit utilisation ratio exceeds this threshold, you may still qualify for a loan, but you may receive a smaller loan principal, a shorter loan repayment term, or a higher interest rate.
Repayment history: This is one of the primary factors affecting your company's CIBIL Score. If your business has consistently paid its loans on time, obtaining additional credit is easy. However, if your company credit report contains records of late payments or defaults, the lender may reject your application for additional credit.
Outstanding debt: A large amount of outstanding debt has a negative effect on your company’s ability to borrow more credit.
Business vintage: If you have been in business for a while and have met all of your financial commitments, your company will be considered as creditworthy right away. However, if you are the founder of a new company, your credit history may be less than ideal due to the lack of historical data depicting your credit behaviour.
How can you improve your business’s CIBIL Score?
You can improve your company CIBIL Score by:
- Repaying all your outstanding debts on time, be it credit card expenses or loans.
- Maintaining a credit utilisation rate of less than 40%.
- Getting rid of expired company credit cards.
- Boosting the profitability of your venture.
- Keeping a sharp eye on your company credit report, and examining it regularly for errors or suspicious activity.
