CIBIL Score for Business Loan

Your CIBIL score is a key factor lenders consider when evaluating business loan applications. A strong score can unlock faster approvals, lower interest rates, and higher loan amounts. Even with a lower score, there are ways to improve your eligibility and secure funding.

Your CIBIL score reflects your credit history, repayment behaviour, and financial reliability. So,  maintaining a strong score not only improves approval chances but also helps you secure higher loan amounts on favourable terms.

Timely repayment of bills and effective debt management are crucial in maintaining a healthy credit score. A good credit history not only improves your chances of loan approval but also helps you secure pocket-friendly terms.

Lenders require applicants to have a minimum credit score based on a wide range of factors that aim to reduce their risk. Key factors include:

• Lender Policies

Each financial institution sets its own rules and limits for assessing credit risk. These policies play a significant role in determining the minimum CIBIL score required for approval.

• Economic Conditions

During periods of economic slowdown or uncertainty, lenders may increase their minimum score requirements. This precaution helps reduce the risk of defaults in challenging market environments.

• Loan Amount and Tenure

Higher loan amounts or longer repayment periods increase the risk exposure for lenders. Consequently, borrowers seeking higher amounts or extended tenures are expected to maintain stronger credit scores.

• Co-applicants/Co-signers

Including co-signers with strong credit profiles can enhance your loan application. It provides additional assurance to lenders and may result in quicker and smoother approval.

If you have a low CIBIL score, the following tips can help improve your chances of securing a business loan:

• Have a Stable Income

Ensure you have a consistent source of income and provide adequate proof to the lender. This helps to demonstrate your repayment capacity and assures the lender of your financial reliability.

• Provide Collateral

Offering collateral such as property or gold can reduce the lender’s risk and increase your chances of approval on more favourable terms.

• Get a Co-applicant

Adding a co-signer or guarantor with a strong credit score and stable income can significantly strengthen your loan application. Lenders take their creditworthiness and income into account, which may enhance your chances of approval. 

• Pay Off Debts

Consider paying off existing loans and credit card balances to lower your Debt-to-Income (DTI) ratio. A lower DTI not only strengthens your loan eligibility but can also help improve your CIBIL score.  Having a ratio of below 35% is generally considered ideal.

• Opt for a Lower Loan Amount

The eligibility criteria for a lower loan amount may be more lenient. This is because a lower amount poses a limited risk to the lender. This approach increases your chances of approval, even with a lower CIBIL score.

While these tips may help you get approved, be aware that the loan terms may still include higher interest rates or shorter tenures. To build a stronger CIBIL score, you can implement these measures:

• Pay the loan instalments and credit card bills on time

• Do not use more than 35% of the credit available to you

• Avoid multiple credit card and loan applications at the same time 

• Check your credit report regularly for errors

• Borrow a healthy credit mix of secured and unsecured forms of credit

Having a low CIBIL score can make it challenging to obtain a business loan. However, several strategies may improve your chances of securing a loan:

• Approach NBFCs, who offer loans to borrowers with lower CIBIL scores, albeit at higher interest rates

• Provide collateral, such as property or other assets, to reduce the lender’s risk

• Maintain a good repayment track record on existing obligations to build trustworthiness

• Show strong business performance with detailed business plans, cash flow statements, and revenue proofs

• Consider a co-applicant with a better credit score to increase approval chances and improve loan terms