Wondering how to get a business loan with a low credit score? Getting loans for business can be tricky, even if you meet eligibility criteria. Lenders look at your Company CIBIL Report and your credit score when you apply for a loan. And one of the most important eligibility criteria is a high credit score. A high credit score on your CCR implies that your company is financially healthy and you can manage your finances well, which makes you a dependable recipient for a loan.
However, your company might have a low credit score on account of being a startup or a business with scanty credit history. Here are a few pointers on how to secure a business loan with low credit score.
Additional Reads – How to Choose the Right Business Loan for Your Startup
Review credit reports
If you have a startup, you wouldn’t possess the requisite records to show how your company manages debt. In such a situation, lenders would look at your personal credit score and decide if you are qualified for a loan. If your company has been functioning for more than a year, the lending institutions look at both your business credit score and your personal credit score to determine your business loan eligibility.
So, get copies of your personal and business credit reports and review them regularly. If you find mistakes or discrepancies, let CIBIL know immediately. This will not only help you have a clean record but also give you an idea about the loans you’re eligible for.
Explore other options
Conduct proper research before you apply for business loans. A few other options that are favourable for companies with a bad credit score –
- Invoice Financing – Invoice financing is a method of borrowing money against the amounts due from customers. It improves cash flow and it helps a business reinvest in the growth of the company without having to wait for the customers to pay. Some lending bodies also offer invoice discounting which can help you avail fast advance of up to 80% of your pending invoice’s value.
- Microloans – Since microloans are mostly intended for underprivileged communities and businesses which cater to the welfare of the society, just having a bad credit score will not make you eligible for microloans. You must associate your business with non-profit goals, for example, by creating job opportunities for the poor. You might also need to take business classes or attend business counselling sessions for getting your loan application approved.
Additional Reads – Tips to Improve Your Business Loan Application
Have a plan
You must have a proper business plan. If your credit score is low, the lender will want to see something that will prove your credibility. Showing a proper business plan as a part of your loan application can give the lender a good impression about you. Additionally, if your reason for a low credit score is money management troubles, a business plan would help in keeping you from repeating your past mistakes.
A few other things you should keep in mind are, the type of lender you have gone to, the age of your business, the duration of the loans available in the market, the interest rate, the annual percentage rate, the loan fees and additional costs of availing the loan.
At Tata Capital, we offer business loan with attractive interest rates. Before you apply, use our business loan EMI calculator to get an understanding of your monthly payment schedule.
Although it will not be a cakewalk, getting a loan with a low credit score it is certainly not an impossible task. So, do your research and weigh your options and start working on it today.