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Business loan CIBIL score: Minimum eligibility criteria explained

Business loan CIBIL score: Minimum eligibility criteria explained

When you apply for a business loan, one of the first things a lender looks at is your CIBIL score. Before they ask about your revenue or plans, they want to see your repayment track record. This number often decides whether your loan application is accepted or rejected.

A strong CIBIL score can speed things up. It can even help you secure the best interest rate. A weak CIBIL score can lead to delay or even rejection. That is why it helps you know where you stand.

In this article, we will discuss the meaning of the CIBIL score, the factors that influence it, and the minimum CIBIL score for a business loan in India. Read on.

Understanding credit scores for business loans

A credit score is a three-digit number that shows how reliable a borrower has been with credit. It usually ranges between 300 and 900. A higher number shows a better repayment track record. When this score is calculated by the Credit Information Bureau of India Limited (CIBIL), it is known as the CIBIL score.

When you apply for a business loan, lenders often check this score first. It gives them a quick sense of your credit behavior. Even though there is no separate CIBIL score for business loans, your personal CIBIL score still plays a big role in the decision.

Why credit scores matter in business loan approval?

Your credit score is not just another number in your loan application. It carries real weight. In many cases, it can make or break the deal. Lenders rely on it to decide how safe it is to lend to you. Even before they study your business in detail, they look at this score.

Your CIBIL score for a business loan affects more than just approval. It can influence the applicable interest rate, the loan amount you qualify for, the repayment terms, and even how fast your application moves.

  • Loan approval chances

This is where the impact is most direct. A higher CIBIL score gives lenders confidence. It shows you have handled credit responsibly in the past. As a result, approval becomes easier. But if the score is low, lenders may hesitate. Sometimes, lenders outrightly reject loan applications due to low CIBIL scores.

  • Interest rates and loan pricing

Your CIBIL score also affects how expensive your business loan becomes. Borrowers with strong CIBIL scores are often offered lower interest rates. This reduces the overall cost of borrowing. On the other hand, a lower score may lead to higher rates, as lenders try to cover the extra risk they are taking.

  • Eligible loan amount

Your CIBIL score can influence the maximum loan amount you become eligible to borrow. By having a strong CIBIL score, you can qualify for a high-amount business loan. Lenders see you as someone who is capable of handling debt responsibly. However, with a weaker score, you may struggle to get a high loan amount as lenders look to limit their risk.

  • Repayment flexibility

A better CIBIL score allows you to negotiate repayment terms with your lender. You can ask for a longer tenure or a flexible repayment structure. This provides breathing space to your business’s cash flow and eases your financial burden over the long term. However, with a low CIBIL score, you have no option but to agree with the lender’s original terms and conditions.

  • Access to unsecured loans

Unsecured business loans are those that do not require collateral or security. They allow you to get access to working capital even if you do not want to pledge your personal or professional assets. However, these loans often require high CIBIL scores. If your score is below the optimum level, lenders may ask for security or may not offer you a business loan at all.

  • Faster processing and credibility

Your CIBIL score for a business loan also determines how fast your application moves. A good score often speeds up the process. Lenders spend less time worrying about repayment risk because your past record already gives them some comfort. It also helps build your business reputation and credibility.

Minimum credit score required for a business loan

There is no fixed answer to how much CIBIL score is required for a business loan in India. While some lenders are comfortable with a slightly lower score, others look for a higher range.

In most cases, the minimum CIBIL score for business loans ranges between 650 and 750. A score of above 750 can even provide you with a fair deal of negotiating power.

In case your CIBIL score is below the optimal level, it doesn’t mean that the door is shut completely. Some lenders may still consider your application if you can provide collateral or bring in a guarantor. A few NBFCs (Non-Banking Financial Companies) even offer business loans for low CIBIL score applicants, albeit with modified terms.

How much business loan can you get based on your credit score?

Your credit score plays a crucial role in determining the maximum loan amount you can borrow. A higher score helps you qualify for a larger amount, as the lenders are assured of repayment.

However, your CIBIL score is not the only parameter that lenders consider when evaluating your business loan quantum. They also check your annual turnover, profit, and how stable the business has been. All these factors together decide your business loan eligibility.

So, even with a good CIBIL score, the final loan amount you can borrow depends on the overall financial position of your business.

Eligibility criteria for secured business loans

Secured business loans are backed by assets or collateral.  They can be real estate property, equipment, or even fixed deposits. This asset works as security for the lender. In the case of default, the lender can claim the asset and use it to recover the outstanding loan amount.

But there are some basic eligibility conditions for secured business loans. The collateral should be in your name. Your business should be properly registered in India, usually under the Companies Act or other valid laws. Lenders may also ask for a minimum annual turnover or business vintage.

Secured vs unsecured business loans

The main difference lies in security. Secured loans are backed by an asset, so the lender’s risk is lower. Because of this, business loan interest rates are usually lower, and approval may be easier even with a weaker credit score.

Unsecured loans don’t need collateral. But the risk for the lender is higher. So, they depend more on your credit score, and interest rates are often higher.

Factors that influence the required credit score

Several factors can influence the required CIBIL score for a business loan in India. For instance, the lender’s policies. NBFCs and Fintech lenders may offer business loans to applicants with lower CIBIL scores, while banks may require a CIBIL score of 750 or higher.

Loan type is another factor. The CIBIL score requirement for a secured loan is always lower than that for an unsecured loan.

Factors like business vintage, annual turnover, and industry risk also play a role. You can get a business loan with a lower CIBIL score if you have good business experience and your annual turnover is high.

Also,read: What Does a 777 Credit Score Mean?

How to check your CIBIL score for free?

Checking your CIBIL score is usually free. You will need to visit the official CIBIL website and click on the “Get Free CIBIL Score & Report” button. Enter the required details, including your name, date of birth, and contact information, and click on the “Accept and Continue” button. If you are already a registered user, you can simply log in using your credentials and view your CIBIL score for free.

Note that the free CIBIL score and report are available only once a calendar year. If you want monthly updates about the changes in your CIBIL report, you can subscribe by paying a nominal fee.

Documents required for a business loan

You may need the following documents to apply for a business loan:

  • Basic KYC documents, including your PAN card and Aadhaar card
  • Business Incorporation Certificate or GST Registration Certificate
  • Income Tax Returns (ITRs) for the last three years
  • Bank statements for the last six months
  • Financial statements audited by a Chartered Accountant
  • Collateral-related documents (for secured loans)

Note that this list is indicative. Your lender may ask for certain additional documents at the time of loan processing.

Tips to improve your credit score for a business loan

These practical tips can help you improve your CIBIL score for a business loan:

  • Pay all your loan EMIs and credit card bills on time.
  • Keep your credit utilization ratio low.
  • Maintain a diversified mix of credit accounts.
  • Do not apply for new loans frequently.
  • Avoid closing older credit accounts.
  • Review your credit report from time to time.

Also,read: What is the Average Credit Score?

Key things to consider before applying

Before applying for a business loan, take a step back and carefully analyze how much money you actually need. Borrowing more than what’s required can unnecessarily increase your repayment burden. It also helps you be clear about the purpose of the loan. You must know if you need it for buying equipment, managing cash flow shortage, or procuring inventory.

It’s also crucial to compare lending options before zeroing in. Go with the lender that’s offering the best deal in terms of interest rate, loan amount, and repayment terms.

Lastly, check if your CIBIL score is above the required threshold. If not, it’s better to improve it first before applying for a loan.

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FAQs

Can you get a business loan with a low CIBIL score?

Getting a business loan with a low CIBIL score might be difficult, but not impossible. Several NBFCs and Fintech lenders in India offer curated business loans for low-CIBIL-score applicants. However, lending terms might be more rigid.

What is considered a good CIBIL score for business loan eligibility?

A CIBIL score in the range of 650 to 750 is considered satisfactory for a business loan. However, the exact criterion may vary from one lending institution to another. A higher score improves approval chances and may also help you get better terms.

Is it possible to get a business loan with a CIBIL score below 700?

Yes, it is possible to get a business loan with a CIBIL score below 700. Lenders may ask for collateral or a guarantor to reduce their risk. NBFCs are usually more flexible in such cases, whereas banks may have stricter requirements for low-score applicants.

How does my CIBIL score affect the interest rates on a business loan?

Your CIBIL score directly affects the interest rate a lender offers. A higher score shows you are a reliable borrower, so lenders may offer lower rates. A lower score is seen as riskier, which can lead to higher interest rates on a business loan.

How often should I check my CIBIL score before applying for a business loan?

It’s recommended to check your CIBIL score at least once or twice before applying for a business loan. This helps you know in advance if you are eligible for the loan. If your CIBIL score is below the satisfactory level, you must first take steps to improve it.

Do newer businesses with no credit history need a CIBIL score to apply for a business loan?

When a business owner applies for a business loan, the lender checks their personal CIBIL score to determine loan eligibility. So, even if a business is new, a good CIBIL score is still important. A few lenders also provide business loans for new businesses based on factors like cash flow projections and the owner’s ability to demonstrate growth.
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