05-Apr-2019 written by : FSI-Team
Some of the best startups are usually short on money rather than ideas and strategies. This is the reason why a business loan is a viable and practical solution for their investment requirements.
In India, business loans can be obtained from traditional banks and NBFCs. However, several factors are considered before a loan is approved. An important one is the CIBIL score.
Your business credit score or CIBIL score allows a lender to measure your creditworthiness. In other words, if your score is high, then it means that there is a small to no risk for the lender. On the other hand, if the score is low, then it may imply that yours is a risky profile which may give the lender a reason to reject your loan application.
A business credit score is based on several factors which include your company’s debt, capital, repayment history of old loans, etc. Almost every lender will check this score before approving your loan application. Thus, you need a high score for the following:
Those who have a good credit score can convince the lenders to approve loans at lower interest rates. This is because they know that they have been good with money management and have paid all their previous loans on time. A lender can easily see the merit in this and may sanction a loan at a more affordable interest rate.
To make your business successful, you need a lot of capital at various stages. For instance, if the market demand is growing, then you may need to hire more workers and purchase new equipment. Similarly, if you want to acquire other businesses to make yours bigger, then you are likely to need a massive capital. In these situations, a business loan can be a huge help.
If your CIBIL score is high, then you can get bigger loans without any problem. Almost every lender will be comfortable sanctioning a loan in light of your high creditworthiness.
When your CIBIL score is low, your options for the lenders are limited. There may be many top lenders in the market that are offering various benefits with business loans such as a line of credit facility, discounts on inventory purchase, etc. However, you may have to miss out of these opportunities because of a low score.
A lot of times, when entrepreneurs need funds but can’t get a personal loan or business loan, then they end up maxing out their credit cards and draw money from their savings. This is never a good idea. For starters, it can hurt your credit rating further which can make getting a loan even more difficult. Secondly, when you use your emergency funds, then you can put yourself in a dangerous situation as you won’t have any liquid funds if and when there is an actual emergency.
if you have a poor credit score, then there is no reason to worry. There are many people who start with a low score but slowly take it up to a good level by taking the right steps. You can do the same by:
Always remember that your CIBIL score determines how easily you can get a loan, and what kind of interest rates are offered to you. So, take good care of it, and try to develop good credit habits. Good luck!