Establishing and sustaining a business requires a massive amount of capital. Inadequate access to the financing options is a principal cause for the business’s lack of success. A business loan comes into the picture when the entrepreneurs need such a financial option. Companies rely on loans for various reasons. While some entrepreneurs avail loan for building a business, others need it for getting the working capital. The right choice of bank loan for business with an attractive interest rate enables entrepreneurs to succeed in the field. However, not everyone is eligible for a business loan. Banks use certain factors to determine this eligibility. The credit score is one of the crucial factors that lenders consider before approving your loan.
The need for a good credit score
Most of the lenders consider your personal credit score as an important factor in approving the business loan. Banks and financial institutions get a credit score of customers mostly from the information bureaus. The Credit Information Bureau of India Limited (CIBIL) is one of the credit Information companies engaged in maintaining the Credit-related payment records of all the companies and individuals. Based on this history, they issue a credit score for the customers and a Company Credit Report, or CCR for the companies. The lenders use these scores to determine your/company’s creditworthiness. The higher the credit score is, the larger the chances of approval. Also, a lower credit score may provide you loans with a higher rate of interest. Hence, a good credit score is adequate to get the right type of loan.
The Minimum Credit Score for Business Loan
The credit information bureaus decide your credit scores mainly based on your credit history, utilization of credit, credit duration and some other factors. A good credit score gives you more options of loans to choose from. Usually, having a credit score of 700 or more is considered ideal for getting a collateral-free business loan. A score of 850-900 is regarded as excellent, and a perfect score for loan approval. Next to that, a score of 750-850 also has a good chance of getting loan approval. As unsecured loan needs more checks, the score which falls in between 700-750 is considered suitable for getting secured loans. If your score is below 700, the chances of getting loan approval are low. A poor credit score makes it strictly impossible to obtain a bank loan for business. However, you can always improve your credit score once you understand its importance. Checking your credit reports annually can help. Furthermore, paying off the unpaid balances, focusing on the credit limit and better dealing with past credits can improve your scores incredibly, thus increasing your chance of getting a loan.