Understanding Minimum CIBIL Score Requirement – For Loans

Minimum CIBIL Score for Business Loan

Businesses require huge amounts of money. Risk-taking entrepreneurs stake their lives and careers on the line to start companies. These businesses and the job opportunities they introduce to the economy are part of the economic lifecycle. Loans fuel such businesses and good loans with attractive interest rate enable people in business to engage in healthy economic trading. But not everyone is positioned to get good loans.
Business loans are available for these risk-taking individuals, but many of them don’t even know where to start.
The Credit Information Bureau of India Limited, or CIBIL, is the oldest function of the Reserve Bank of India to disperse credit information to banks and financial institutions.

What Are Cibil Scores and Cibil Ranks?

To assess the credibility of a person or business, the payment history of the individual or business is gauged and quantified into a 3 digit number known as the CIBIL score.

Your CIBIL Company Credit Report, or CCR, is a record of payment history compiled from multiple institutions. These are regarded as reputational collaterals. For your CIBIL rank, it ranges from 1 to 10. The closer the score to 1, the better the probability of securing a loan. A score of 10 means a heaping pile of trouble. Bear in mind, a CIBIL score is applicable to individuals seeking loans. CCR is the term that is applicable to businesses seeking loans.
Now that you are familiar with what a CIBIL score for business loan and rank are, and where on its spectrum you would like to be, it is time to understand what brings down your score and what brings it up. Bringing up your CIBIL score for business loan.
Putting it simply, the better your history in dealing with past credits and loans, the better your CIBIL score for business loan will be.

What affects your CIBIL score?

You score has nothing whatsoever to do with the following:

• Investment account information
• Savings held in the past
• Fixed deposit accounts
• Trading accounts
• Current account
• Savings account
• Investment accounts
• Your education level
• Your annual income
• Your gender
• Your race
• Your ethnicity

Credit Score on Business Loan Determination Factors

The score generated by the TransUnion CIBIL authority is the only indicator of your score. Each credit bureau uses its own specialised scoring methodology that has nothing to do with CIBIL, so don’t be confused by multiple credit bureaus. The TransUnion CIBIL agency is the one you want.

How are scores checked?

Checking your score is important, and keeping up with your payment history will allow you to do that. However, there are times when checking can hurt your actual score! So how do you avoid this?

• Soft checks
• Hard checks

Soft inquiries do not hurt your score. Soft inquiries are when an enquiry is requested by:

• Credit bureaus
• Third party authorised institutes

An infinite amount of these checks are okay and do nothing to affect your score.
However, when a request is made by institutes such as:

• Banks
• Credit card companies
• Various creditors

Your score undergoes damage. This is called a hard enquiry, and you must avoid them as much as possible.
However, please don’t worry if this seems too complicated. You are entitled to a free credit report annually by the TransUnion CIBIL authority, so make sure to keep that in mind. The first one is free, but you are charged for any further reports in a year.
There are no fast and easy shortcuts to this, however. Keep in mind that your financial behaviour for the duration of 6-12 months is analysed before arriving at your score. So the only way to improve your score is through actual perseverance, dedication and hard work.

How Much CIBIL Score is Required for Loan for Business?

When applying for a business loan, the ideal minimum credit score for loan  varies as it depends on whether the loan is secured or unsecured:

• Unsecured business loan: A CIBIL score of 700 or above is typically expected for collateral-free loans. Lenders assess such applications stringently as there is no security backing the loan. 

• Secured business loan: For secured loans, a score between 600 and 700 may suffice since collateral provides additional security, reducing the lender’s risk. 

Additionally, the applicant’s business structure influences the credit evaluation:

• Individuals and Sole Proprietors (such as professionals and self-employed individuals) have their personal credit scores checked. 
• Business Entities (like Partnerships, LLPs, and Private Limited Companies) undergo a review of both the business’s credit score and, in some cases, the owner’s score. 
• For MSME (Micro, Small, and Medium Enterprise) loans, aimed at supporting small businesses in India, a credit score of around 700 is commonly expected. Lenders may be flexible to provide a business loan for low CIBIL scores for smaller businesses, although higher risk often results in higher interest rates. 

Therefore, if you have a high CIBIL score the banks will give you whatever loan amount you want. The CIBIL score for loan eligibility needs to be above 700 in order to achieve this feat. 

How Much CIBIL Score Required for Personal Loan?

Generally, a CIBIL score criteria of 730 to 750 is ideal for personal loans in India. The CIBIL score minimum is 300 and the highest is 900. 750 is considered a strong score, making it easier to get a personal loan with favourable terms. Although some banks might approve a personal loan with low CIBIL score if it is in the range of 600 to 700. However, a score below 730 may limit options. It can result in higher interest rates or stricter loan terms. 

If your CIBIL score for personal loan is above 750, lenders typically view you as a reliable borrower, granting more flexibility in repayment tenure and interest rates. However, for those with scores slightly below 730, it is still possible to get a loan, though options may be fewer or terms less advantageous. 

What is NH in CIBIL Score?

In CIBIL terms, NH or NOHIT indicates that an individual lacks a credit history. This essentially means that there is no prior data available on their credit behaviour for credit rating agencies to assess. This results in a “No History” or “Not Available” status on their credit report. People who are new to credit- those who haven’t taken a loan or used a credit card before- often receive this rating. Since there is no information to evaluate their creditworthiness, they will be initially assigned an “NGH” until they establish a credit record. 

What Will Happen if My CIBIL Score is NH or NOHIT?

An NH or NOHIT CIBIL score does not necessarily mean you cannot get a loan. For new borrowers without prior credit history, lenders may still evaluate eligibility based on other factors:

• Income Stability: A consistent, well-paying job can positively influence the decision. Regular income and a longstanding salary account suggest financial responsibility, increasing loan approval chances. 

• Employer’s Reputation: Working with a reputable company, especially one recognised in the corporate sector, can be an advantage. Lenders tend to view stable employment as a positive factor even when there is no credit history. 

• Loan Type: Secured loans, backed by collateral like property or assets, are more accessible to those without a credit history. For unsecured loans, lenders may be more cautious as there is no collateral to mitigate risk. 

• Loan Amount Required: A smaller loan request in proportion to income is easier to approve since it poses a lower risk. On the other hand, high loan amounts may require a more established credit history for approval. 

• Guarantor or Co-signer: Having a guarantor or co-signer with a strong credit history can positively impact your business loan eligibility and strengthen your loan application. Their good credit score helps compensate for the lack of credit history and increases the lender’s confidence in payment. 

How to improve your credit score?

Let’s explore some of the methods of improving your score.

1. Focus on your credit utilisation

Utilisation here means how much you use of the credit limit you have on your card. Surpassing 40% of your limit shows that you have a high need for credit and raises the possibility that this high usage of credit means possible defaulting in future. Get another card and spread out your credit utilisation. Never surpass 30% to be safe.  40% is the upper cutoff. The ones that don’t need money are often the ones that are granted money. Also, here you can take measures to increase your credit limit so that you will never surpass 30% as well.

2. Outstanding balance

Just paying the minimum is a terrible way to increase your score. Pay off the unpaid balance as soon as possible, and pay off the entire balance at that.
The facts that your balance is carrying over to the next month is an indicator that you are unable to pay your debts fully and on time, and this hurts your score. Do whatever you can to lawfully pay off the balance to see your numbers start improving. Seek assistance from benevolent friends and family and other resources you have.

3. New credit applications

For the next year, don’t apply for any new loans. Loan thirsty individuals are seen in a negative light. Each loan mandates a recheck of your CIBIL score, and this counts as a hard check. As discussed before, you want to avoid hard checks at all costs.

The Bottom Line:

So there you have it. Bear in mind, even if you do happen to have a low score, don’t fret too much. You might still get a loan, albeit at a higher interest rate. These measures simply ensure you the best position to seek loans. Keeping these facts in mind will allow you to gain control over your CIBIL rank/score and allow you to nurture and grow your business into an indispensable part of the economy one day.

Ultimately, while a high CIBIL score enhances your chances for favourable loan terms, Lendingkart is here to support you regardless of where you stand. We provide you with customised financial solutions that help you build and sustain your business. With the right knowledge and resources, you can confidently move towards your business goals, becoming a valuable part of the economy. 

Frequently Asked Questions

What does NA or NH denote in my CIBIL score for business loan?

NA and NH signify that you might not have a credit history to be assigned a score. You either have no credit card activity in the past couple of years or are lacking credit card exposure.

Can CIBIL change or delete my records?

No. CIBIL does not have the power to delete your records on their own.

Is there a defaulter list for CIBIL?

CIBIL does not possess or maintain a list of defaulters.

What is CIBIL 2.0?

CIBIL 2.0 is the latest in measuring CIBIL scores. It has been created with changing industry trends in mind. Your scores in the 2.0 system varies from the scores given in the 1.0 system.

What is the minimum CIBIL score required to apply for a business loan in India?

In India, the minimum CIBIL score for a business loan, especially an MSME loan, typically ranges between 650 to 700. However, this can vary among lenders and the nature of the loan. Generally, a higher business loan CIBIL score increases the chances of approval, demonstrating strong creditworthiness. While some institutions may consider scores below this range, a robust credit history greatly improves eligibility.

What is CIBIL v3 score?

The CIBIL v3 score is a credit assessment tool used by lenders to evaluate an individual or business’s creditworthiness. For business loans or MSME loans, a minimum CIBIL score is often required as a benchmark for eligibility. While specific requirements vary among lenders, a higher CIBIL score typically improves the chances of approval, demonstrating responsible credit behavior and reducing the risk for lenders.

Are there different CIBIL score requirements for different types of business loans?

Different types of business loans may have varied CIBIL score prerequisites. Generally, for MSME loans, lenders seek a minimum CIBIL score of 650 or above. However, for larger business loans, institutions might demand higher scores, typically around 700 or more. Each lender sets its criteria, evaluating creditworthiness, repayment capacity, and financial history, impacting the minimum credit score required for a business loan.

What does a 0 /- 1 CIBIL score mean?

A 0 or -1 CIBIL score often indicates a lack of credit history, making it challenging to assess creditworthiness for loans. For business or MSME loans, lenders typically seek a minimum CIBIL score, usually above 700, to gauge reliability. Having no credit history might require alternative evaluations or the establishment of a credit profile to meet the minimum credit score for a business loan approval.

Can i get loan with nh cibil score?

The eligibility for a business loan with NH CIBIL score varies across lenders. Generally, for an MSME loan, a minimum CIBIL score of around 650-700 might be required, while for specific business loans, lenders may consider scores as low as 600. However, each institution has its own criteria, including factors beyond just the CIBIL score, impacting loan approval for businesses.

Can I get business loan with CIBIL score 650?

A CIBIL score of 650 is considered fair, but not very good. It may limit your credit options and make it harder for you to get a business loan. Generally, a minimum CIBIL score for MSME loans of around 650-700 might be required, while for specific business loans, lenders may consider scores as low as 600. However, each institution has its own criteria for a minimum CIBIL score for loan which also includes factors beyond just the CIBIL score, impacting loan approval for businesses along with CIBIL score loan eligibility.

What is the CIBIL MSME rank?

The CIBIL MSME rank is a credit risk rank for MSMEs that predicts the probability of default over a one-year horizon. It is calculated based on 24 months of the MSME’s credit history on the bureau. The CIBIL MSME rank is applicable to MSMEs with aggregate commercial borrowings between INR 10 Lakhs and INR 10 Crores. Currently around 27 lacs MSMEs fall under CIBIL score loan eligibility to be ranked on CMR.

What is the CIBIL score for SME?

The CIBIL score for SME is similar to the CIBIL score for individuals, but it reflects the credit history and creditworthiness of a small or medium enterprise. Any score with minimum CIBIL score for MSME loan between 750 and 900 is generally taken as an ideal score making your business eligible for SME credit. A high score indicates your diligence and financial management capacities in managing your business. A higher score also lends you eligibility to negotiate favourable terms for the loan.