How CIBIL score affects your Business Loan application

Everyone who is doing business or wishes to do business always has these common questions in their mind: Will I get a Business Loan? Am I eligible for a Business Loan? and many other such questions.

These questions are highly valid for the obvious reason being that a Financial Institution will highly focus on these questions before processing a loan.

Budding startup entrepreneurs, SME owners, self-employed professionals and self-employed non professionals are in hunt for lenders who can fulfill their business dreams with ease.

A business loan can be used for various reasons like setting up units, office expansions, hiring staff, buying equipment, office renovation and others.

How CIBIL affects you?

Availing of any type of loan can only be possible with a good CIBIL score or a good credit history. This criterion is applicable for majorly all types of loans across Financial Institutions that are into the business of offering loans. Possessing a good CIBIL helps lenders to identify your timely repayment and payment history. Thus increasing the chances of getting your loan sanctioned.

Generally, a CIBIL score ranges from 300-900. And a CIBIL score above 750 is considered good. With a score like 750, there are higher chances that the borrower may get a loan. And it is highly important to maintain a good CIBIL score by paying your EMIs on time, making timely payments of your credit cards etc and other such factors listed below.

How is the CIBIL score calculated?

There are four key factors that impact your CIBIL score:

1. Payment history: Making late payments or defaulting on your EMIs has a negative impact on your score.
2. Credit mix: Having a balanced mix between secured loans and unsecured loans is likely to have a positive impact.
3. Multiple enquiries: Too many loan enquiries may have a negative impact on your score as it indicates that your loan burden may go up in the future.
4. High credit utilisation: A high credit utilisation limit indicates a rising debt burden over time and may negatively impact your score.

How can you work towards a high CIBIL score?

Your CIBIL score is based on your credit history and past payments, but it subsequently impacts your future access to credit. What you do today can help you build a stronger and healthier credit footprint. Here are a few quick tips to help you improve your score:

• Always pay your dues on time. Late payments are viewed negatively by lenders.
• Keep your balances low. Be prudent, do not use too much credit, and control your utilisation.
• Maintain a healthy credit mix of secured (like home loan and auto loan) and unsecured loans (like personal loan and credit cards) - too many unsecured loans may be viewed negatively.
• Apply for new credit in moderation. This shows that you are not continuously seeking excessive credit.
• Monitor your co-signed, guaranteed and joint accounts monthly. Remember that you are held equally liable for missed payments in co-signed, guaranteed or jointly held accounts, and your joint holder's negligence could affect your ability to access credit when you need it.
• Review your credit history frequently throughout the year. Monitor your CIBIL Score and report regularly to avoid unpleasant surprises (like a rejected loan application).

Therefore it’s highly suggested to maintain your CIBIL score by making timely payments to your lender. And remain in good books of the banks.

If you wish to apply for a Business Loan from Fedfina, click here