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Home » Getting a Business Loan with Bad Credit or Low CIBIL Score

Getting a Business Loan with Bad Credit or Low CIBIL Score

Getting a business loan is pretty common nowadays for people who are starting a new business, selling goods, owning a store, or manufacturing products. A business loan is money that can be used to help keep the business running smoothly, like paying bills or buying new equipment, hiring staff, and more. But before getting a business loan, it’s important for the business to have a good credit score or CIBIL score.

The credit score is a number that tells how trustworthy a business is when it comes to repaying loans. A higher score, like over 750, is usually better because it means the business is more likely to pay back the loan on time. If the score is lower, it may be harder to get a loan at a low interest rate. However, there are still options for businesses with lower credit scores to get a loan without too much trouble.

What are the criteria for being eligible for a business loan?

When it comes to business loans, there are certain requirements that need to be met in order to be eligible. Generally, you must be running a legitimate business with a good turnover. Each bank or lender may have their own criteria for evaluating and approving a loan, which can include factors such as the type of business (proprietorship, partnership, private limited or public limited), the business’s turnover, its profit and cash flow, and its track record. Ultimately, the decision to approve a loan, the loan amount, interest rate and tenure are all determined by the bank or lender based on their evaluation of these factors.

What is the minimum credit score needed to get a business loan?

Different credit bureaus use different methods to calculate credit scores, and in India, there are four main credit bureaus: TransUnion CIBIL, Experian, Equifax, and High Mark. Most lenders, including banks and NBFCs, usually look at the credit score calculated and managed by CIBIL when considering whether to give out a loan or not. If your credit score is below 750, it may be more difficult to get a loan at a low-interest rate.

How can one obtain a business loan despite having a bad credit or low CIBIL score?

If you need a business loan urgently but have a low CIBIL score that’s making it difficult to get one, don’t worry! You can try these methods:ContactSmall Finance Banks (SFBs) or Micro Finance Institutions (MFIs)

If you’re having trouble getting a business loan because of your low CIBIL score, you can try reaching out to Small Finance Banks (SFBs) or Micro Finance Institutions (MFIs). These are financial institutions that primarily look at your financial stability, repayment ability, financial history, and loan defaults (if any). If everything checks out, getting a business loan from them should be relatively easy. However, keep in mind that the interest rates charged by these institutions may be higher than those charged by private or public sector banks.

Call Refer Loan: While having bad credit can make it challenging to get a loan, Refer Loan is here to help. As a lending company, Refer Loan understands the difficulties that come with bad credit and works to find loan options that suit your financial needs. With minimal documentation and a fast processing time, Refer Loan makes the loan application process hassle-free. Plus, there are no hidden charges, so you can be sure that you’re getting the loan you need without any surprises. Whether you need a loan for your business or personal needs.

Contact Non-banking Financial Companies (NBFCs)

If your low CIBIL score is making it difficult for you to get a business loan, don’t worry! There are other options you can consider. Non-banking Financial Companies (NBFCs) are a good alternative to traditional banks. They can offer loans and credit cards at higher interest rates, but they’re generally more flexible when it comes to credit scores. Keep in mind, however, that the interest rates charged by NBFCs may be higher than those charged by banks. So, it’s important to weigh the pros and cons of each option before making a decision.

Try Overdraft Facility

If your low CIBIL score is preventing you from obtaining a business loan, there’s another option you can consider: getting an overdraft facility from a bank. An overdraft is a type of loan where the lender approves a total credit limit, and interest is charged only on the amount that is used from the sanctioned limit.

To be eligible for an overdraft, it’s helpful to have a good relationship with the bank and hold a current or savings account with them. Banks are generally more lenient with overdraft approvals and don’t typically check your CIBIL score. However, keep in mind that the interest rates on overdrafts may be higher than traditional loans, and you’ll need to manage your spending to stay within the approved limit. Be sure to weigh the pros and cons of each option before making a decision.

Apply for secured business loan at leading banks

If you have a low CIBIL score and are struggling to get a business loan, you may want to consider applying for a secured loan with a leading bank. A secured loan requires the borrower to provide collateral or security to the lender in the form of property, equipment/machinery, gold, raw materials, stock, inventory, or other assets. By providing collateral, the risk to the bank is reduced, making it easier to approve a loan even if the borrower has a low CIBIL score.

Keep in mind that with secured loans, the lender has the right to take possession of the collateral if the borrower is unable to repay the loan. However, this type of loan can be a good option if you have valuable assets that you’re willing to use as collateral, and it can help you get the funding you need to grow your business.

Opt Peer to Peer Lending option

If you’re struggling to get a business loan due to a low CIBIL score, peer-to-peer lending (P2P) may be a good option for you to consider. P2P lending involves borrowing money from individuals or groups through an online platform, rather than from a traditional bank or financial institution.

One advantage of P2P lending is that you may be able to borrow smaller amounts of money without having to provide any collateral or security. However, keep in mind that the interest rates on P2P loans are typically higher than those offered by banks or other lenders. It’s important to carefully review the terms and conditions of any P2P loan before accepting it, and to ensure that you’ll be able to make the repayments on time.

Credit Score Range

Your CIBIL score is a number that ranges between 300 and 900, and it’s divided into four categories based on your score.

A score of 300-550 is considered poor, while a score of 550-650 is considered fair. A score of 650-750 is considered average, and a score of 750-900 is considered good.

The higher your score, the better your chances of being approved for loans, credit cards, and other financial products.

It’s important to monitor your credit score regularly and take steps to improve it if necessary, such as paying bills on time and reducing your debt.

What are some ways to improve your CIBIL score?

Improving your CIBIL score can increase your chances of getting approved for a business loan. While it might not be easy, there are some ways in which you can work towards improving your score. Here are a few ways to do so:

  • Make sure you pay off all debts or credit card dues on time, in the form of EMIs: One of the most important factors that affect your credit score is your repayment history. Late payments, missed payments, or defaults negatively impact your credit score. So, ensure that you pay all your debts and credit card dues on time.
  • Check your credit report for inaccuracies and work to resolve them: Sometimes, errors can creep into your credit report and affect your credit score negatively. It is important to check your credit report regularly and report any inaccuracies to the credit bureau for correction.
  • Ask the bank to increase your credit card limit: If you have a good repayment history and low credit utilization ratio, you can ask your bank to increase your credit card limit. This can positively impact your credit score.
  • Avoid being a guarantor for anyone or a co-borrower: Being a guarantor for someone or a co-borrower on a loan can negatively impact your credit score if the person you have guaranteed for defaults on the loan.
  • Keep old bank accounts and credit cards open: Length of credit history is an important factor that affects your credit score. So, if you have old bank accounts or credit cards, do not close them. This will help in maintaining a good credit history.
  • Develop a healthy mix of secured and unsecured loans: Having a good mix of secured and unsecured loans can positively impact your credit score. So, opt for unsecured loans like personal loans or credit cards, in addition to secured loans like home loans or car loans.
  • Avoid making unnecessary loan inquiries: Making too many loan inquiries within a short period of time can negatively impact your credit score. So, refrain from making unnecessary loan inquiries.

What Factors Affect Your Credit Score?
As a borrower, your credit score is impacted by several factors, including

Any outstanding debts you have, such as loan EMIs or credit card dues

  • Your history of repaying debts on time
  • Your monthly or annual income
  • Your overall financial history and stability
  • Any defaults or delays in paying off previous loans or credit
  • Multiple loan applications, which can indicate financial instability and lead to rejection of loan applications
  • Being new to credit, meaning you don’t have any credit history yet
  • The mix of secured and unsecured loans in your credit history

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