The CIBIL score or credit score is very important to consider while applying for a business loan. This score is required by banks, non-banking financial corporations and other financial institutions to assess your creditworthiness and chances of repaying a loan. A high CIBIL score indicates that you are a good credit risk and will confer benefits such as lower interest rates on loans.
The CIBIL score is calculated using information from more than 6.5 billion records of loans and credit cards held by thousands of Indian lenders across the country.
Minimum CIBIL score needed for business loans
All banks and financial institutions use the CIBIL score to evaluate your eligibility for a loan and decide the rate of interest that would apply to it.
To get a business loan, you will have to maintain a good CIBIL score. But what is the minimum CIBIL score required for getting such a loan? The answer to this question depends on various factors such as your occupation and nature of business, the type of bank you approach for the loan, and more.
For a collateral-free business loan, you will need a credit score of at least 700. When applying for a secured business loan, however, the loan can be approved for a lower CIBIL score, of 600 to 700.
How to check your CIBIL score for free
It is easy to check your CIBIL score online by following the steps below. Ensure all the information you enter is correct to get the right results.
For a free CIBIL score check, visit the official website of TransUnion CIBIL, the company in charge of generating CIBIL scores.
- Select the ‘Get your CIBIL Score’ option.
- Enter your name and email address, and create a password to log in to your account. You will also need your identification documentation details (such as your PAN card number, passport number, voter ID or Aadhaar number) along with your pin code, birthdate, and phone number.
- Click on the ‘Accept’ button to proceed.
- You will receive an OTP on your registered phone number. Enter this OTP and click on the ‘Continue’ button.
- Go to the dashboard to check your CIBIL score.
- You will be redirected to the results page.
- You can now view your CIBIL score.
How to get a good CIBIL score for business loans
The credit rating of a business is one of the main aspects lenders look at when deciding whether or not to issue a loan. If a business has a high CIBIL score, it means that they are more likely to pay back debts on time and in full. This can help them get better rates on loans and may even help them get approved for loans that they wouldn’t have otherwise been able to get approved for.
There are several ways that you can improve your business’s CIBIL score:
1. Check your credit report and dispute any errors
If there are any errors in your credit report, you can file a dispute with the credit bureau or the agency that issues your credit report. Your creditors may be able to help you resolve these issues and get your CIBIL score back on track.
2. Keep your accounts active
This will help you improve your score in case of any future defaults by improving your credit history. Always keep your utilities and telephone accounts active, as well as all other outstanding loans with banks or financial institutions.
3. Don’t open new accounts unless it’s absolutely necessary
You can avoid the situation of being denied by opening a new account, but it’s better to wait until you have a sufficient balance in your existing accounts. The reason is that if you open a new account with a large amount, then there is a possibility that your CIBIL score will go down due to a large number of transactions.
Factors affecting CIBIL scores for business loans
The CIBIL company score is a measure of the creditworthiness of your organisation. It is calculated by a computerised algorithm based on your past and current financial transactions, including loans, debts, bills and payments. You can check the score with the help of various credit facilities.
The CIBIL company score is calculated based on various factors such as:
- Payment history: This is the first and most important factor in determining your CIBIL score. If you have a good record of timely payment of bills, you will get a better score.
- Credit utilisation ratio: Your credit utilisation ratio is the percentage of how much credit is being used by you as compared to your total credit limit. In case you are using more than 80% of your available credit limit, then it will negatively affect your CIBIL score.
- New credit: Every time you apply for a new loan or credit card, it will affect your CIBIL score. So, try to avoid applying for new loans as much as possible if you want to maintain a good CIBIL score.
- Late payment history: Late payments not only affect your current CIBIL score but also all future scores as well (even after paying off all dues). So, ensure you make all payments on time without fail!
The importance of CIBIL scores can not be overstated. The integrity of CIBIL scores reflects transparency in financial dealings, which is a crucial aspect of business transactions these days. A good CIBIL score can help a business strike the right deals with well-wishers and raise money at reasonable rates.
On the other hand, a bad CIBIL score often becomes a daunting task for banks to deal with. So, if you are interested in raising capital for your business or even floating your company’s shares, first ensure your CIBIL score is free of malpractices. Remember, you can always check your CIBIL score for free online.
Are you looking for similar finance blogs? Visit the Piramal Finance website and help yourself to the knowledge of wide-ranging financial products and services, especially credit card scores, mutual fund investments and personal loans.