Can We Get a Business Loan Against Low CIBIL Score – Eligibility & Options

A company needs money for growth and expansion. You need enough cash to carry out your plans effectively, whether that means purchasing new machinery, stock, boosting working capital, or any number of other things. Additionally, you must have sufficient liquidity to maintain your business’s ongoing activities. You might require a loan to cover these business needs.

Your loan amount will rely on several variables, including business income, assets, profits, liabilities, and collateral value. However, this is still insufficient. Lenders look at your credit history as well before approving a business loan. Long and solid credit history is crucial to the granting of a company loan. To demonstrate your creditworthiness, you must have a high credit score. The loan industry in India has recently undergone a rapid transformation toward greater accessibility.

Due to several causes, including the advent of online loan platforms and the growth of non-banking financial enterprises in the market, lending procedures have gradually loosened. These factors mean that loans with low CIBIL scores are no longer unworkable. However, it is essential first to understand what having a poor CIBIL score entails before diving into how one might obtain business loans with terrible credit.

What Does a CIBIL Score Imply?

One of the most crucial elements lending organizations consider when assessing a loan application is the CIBIL, or credit score. This score, which varies from 300 to 900, is fundamentally a numerical reflection of one’s credit history.

Although a proprietary algorithm is used to determine CIBIL scores, a person’s loan repayment history significantly impacts that score. The score evaluates a person’s creditworthiness and depends on their borrowing and repayment history as reported by their prior creditors. One should ideally have a credit score of at least 750 to ensure their new loans are approved quickly.

What Is a Business Loan, and Why Does a Business Need One?

Businesses are organizations that engage in profitable activities. Therefore, it needs enough money to pay for expansion costs or start-up charges. As a result, the corporation uses commercial loans to get its needed funding. An obligation to repay a business loan is to do so by the loan’s terms and conditions.

Business loans are borrowed money companies utilize to cover costs they can’t otherwise afford. For instance, some business owners use commercial loans to pay employees’ wages and salaries while waiting for their start-ups to become profitable. In contrast, others use borrowed money to pay for inventory, office supplies, or business projects.

Business owners should make sure they have a clear understanding of how the money will be used because lenders would like to understand how the company intends to spend the borrowed funds. Now that you know what a business loan is and why you might need one, let’s examine how the CIBIL score affects your ability to get a business loan.

What Are the Factors Responsible for Lowering Your CIBIL Score?

Let’s examine some of the main elements that can adversely impact your CIBIL score:

1. To prevent missed or delayed payments, it is advised to set up reminders and alerts. The late or lost payment is insufficient to count toward the score.

2. Since you run a higher danger of default, lenders will be alarmed by the high credit risk.

3. Your credit score will be impacted if delinquent bills or unpaid debts are listed in your credit report.

4. You risk falling into the debt trap if you consistently pay only the minimum amount. Rolling over the debt and paying only the minimum amount results in the collection of an intriguing balance.

5. If you make several requests, several credit queries occur essentially at the same time. These will be reported, which might act to lower your overall score.

6. Your score may be impacted by inaccuracies or discrepancies in your CIBIL report.

7. Your credit score will suffer if you don’t have a variety of credit. It’s critical to keep your balance of unsecured loans healthy.

8. Credit history’s length.

9. The old credit card accounts are closed.

Read also : Credit Score on Business Loan Determination Factors

How Can Someone Get a Business Loan with Low Credit Score?

Do not give up if one of the difficulties of getting a business loan is a poor CIBIL score. By following the below approaches, you can get a business loan for low CIBIL score:

1. NBFCs

NBFCs are hesitant to offer commercial loans to borrowers with low CIBIL scores, but they can be open to doing so in specific circumstances. As an illustration, certain non-banking financial institutions might consent to offer loans with high-interest rates.

2. Business credit card

Credit lines can also be obtained via business credit cards. Depending on your prior payment history, etc., your credit eligibility may change. It’s crucial to be aware that these cards frequently have very high-interest rates because your poor credit history has been reflected in your credit reports.

3. NBFC (Non-Banking Financial Company)

For assistance with your needs for business loans, you can also get in touch with non-bank financial institutions. NBFCs are permitted to make loans despite not having a banking license. NBFCs can approve loans with huge values, but they also have higher interest rates. As a result, even though your report indicates that your CIBIL score is low, they nonetheless grant you a loan at a high-interest rate.

4. Loans based on earnings

In this scenario, the company prepays the entire loan amount and consents to repay the debt using a predetermined portion of future monthly revenue. The repayment cycle continues until the debt and interest are fully repaid.

5. Microcredit

It is a modest loan provided to start-up small businesses. Microfinance institutions, which are non-profit organizations, offer microloans. This loan often has a repayment period of up to 7 years, and its interest rate is lower than loans from internet lending organizations. Even if your credit score is down, you can still get this.

6. Mortgage Loan

A corporation can receive a mortgage loan without knowing your CIBIL score if it holds important assets like real estate, equipment, technology, etc. In such circumstances, your poor CIBIL score won’t matter if you want to get a mortgage loan.

Strategies To Obtain a Loans for Business with Bad Credit Scores

Obtaining a business loan can be a challenge for those with the lowest CIBIL score, but it’s not impossible. Several lenders offer options tailored for individuals with poor credit histories. Understanding these alternatives significantly increases your chances of securing the funds you need to grow your business.

• Lenders with No Minimum CIBIL Score for Business Loan Requirement:  Many financial institutions and alternative lenders do not impose strict CIBIL score requirements for business loans. This flexibility allows individuals with lower scores to explore financing options without the stress of meeting a specific score threshold. 
• Applying with a Co-Applicant or Guarantor: Including a co-applicant on your loan application can enhance your chances of approval. The co-applicant’s income and creditworthiness can offset your low CIBIL score, as lenders view the combined financial stability more favourably. When choosing a guarantor, ensure that they have a strong credit history and are fully aware of the loan implications. 
• Explain Your Credit Inactivity: If you have a low or no credit score due to inactivity, meaning you have not taken loans or used credit cards, be upfront with your lender. Providing a clear explanation about your lack of credit history can help the lender understand your situation better and consider your application more favourably.
• Request a Smaller Loan Amount: If your CIBIL score is less than ideal, consider applying for a smaller loan amount. Lenders are often more willing to approve lower loan requests, as they involve less risk. A modest loan can serve as a stepping stone for your business and help build your credit profile over time. 
• Provide Income Proof: Demonstrating your ability to repay the loan is crucial. Lenders often require documentation such as salary slips, bank statements, and income tax returns. These documents serve as evidence of your financial health and can strengthen your application. It shows that you have a reliable source of income. 
• Consider Secured Loans: Opting for a secured loan can be a viable solution if you have a low CIBIL score. This type of loan requires collateral such as property, jewellery, or a fixed deposit. The security you provide gives the lender confidence, as they have recourse to the collateral in case of default. This option may also result in more favourable loan terms and lower interest rates. 

How to Increase CIBIL Score?

When navigating the complexities of securing a loan with a low CIBIL score- particularly if your score is below 600, which is often considered the lowest acceptable score for lenders, it is crucial to present a strong application. However, here are some strategies you can implement to gradually increase your CIBIL score:

• Timely Bill Payment: Paying your bills on time is essential. It shows creditors that you are responsible and can manage your financial commitments effectively. 
• Reduce Debt Payment: Keeping your debt levels low helps lower your credit utilisation ratio. A lower ratio indicates to lenders that you are not overly reliant on credit. This positively impacts your credit score. 
• Establish a Credit History: Building a credit history can be done by opening a business credit card or taking small loans. Regular use and timely payment on these accounts can gradually boost your score. 
• Regularly Monitor Credit Reports: Frequently checking your credit reports allows you to identify and rectify any inaccuracies. This practice also helps you stay informed about your credit status and spot any areas needing improvement. 
• Diversify Credit Types: Having a mix of credit types, such as credit cards, loans, and lines of credit can enhance your score. A varied credit portfolio demonstrates your ability to handle different types of credit responsibly.  
• Limit New Credit Applications: Avoid applying for multiple credit accounts in a short period. Each application can result in a hard inquiry, which may negatively impact your score. Focus on applying for credit only when necessary. 

Conclusion

Securing a business loan with a low CIBIL score may seem challenging, but various options and strategies can facilitate the process. By exploring alternative lenders, applying for smaller amounts and showcasing your repayment capability, you can enhance your chances of approval. Moreover, taking steps to improve your credit score can lead to better financing opportunities in the future. For tailored financial solutions and support, consider leveraging Lendingkart. We specialise in helping businesses navigate find challenges and achieve significant business growth. 

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Business Loan for Low CIBIL Score FAQs:

1. What is CIBIL Score?

A three-digit numerical summary of your credit history is known as a CIBIL Score. The CIBIL Report’s credit history is used to calculate the score. This report details a person’s credit payment history over some time across various loan kinds and credit agencies.

2. Before approving the loan, will the NFBC evaluate the CIBIL Score?

When you apply for a loan, the NFBCs will review your CIBIL Score to determine your credit history and financial situation. Your loan application is more likely to be approved the higher your credit score is.

3. I have a low CIBIL score; can I still receive a loan?

Yes, you can still apply for a loan if your CIBIL score is poor. You may still receive the money you need to build a profitable business even if your credit is bad.

4. Can someone with a credit rating of 500 obtain a business loan?

Yes, you may obtain business loans even with a 500-credit score. There is no required minimum credit score for some lenders.

5. I have no revenue; can I still acquire a business loan?

Yes, non-income business loans are intended for business owners who, for a variety of reasons, may not have official paperwork or demonstrate very little taxable income.

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