What is the Minimum CIBIL Score Required for a Business Loans?

As a business owner, you may frequently find yourself needing help generating adequate finance for running your business. This is where business loans come in since they enable all business owners to run their operations and meet necessary capital requirements. 

Business loans are incredibly crucial because they permit you to continue conducting business even when you don’t have enough money. In this context, the CIBIL score is a significant factor in business loan eligibility since lenders want to know if your firm can repay the loan. Let us understand CIBIL in detail.

What is a CIBIL Score?

Credit Information Bureau India Limited (CIBIL) is one of the four well-known credit information organisations licenced by the Reserve Bank of India (RBI). The RBI has also approved Experian, Equifax, and Highmark to operate as credit information companies. However, the CIBIL score is India’s most widely used credit score. 

The CIBIL score is a three-digit numerical representation of your credit history. The credit history in the CIBIL Report is used to calculate the score, also known as Credit Information Report (CIR). A CIR is a person’s credit payment history across various loan kinds and credit institutions throughout time. A CIR does not include information about your savings, investments, or fixed deposits. It ranges between 300-900. The higher your credit score, the better your credit rating. A CIBIL credit score develops over time, and it often takes 18-36 months or more of loan repayments to achieve an acceptable credit score.

How are CIBIL Scores Categorised?

A CIBIL score will fall somewhere between 300-900. The closer your score is to 900, the greater your creditworthiness. The various CIBIL score ranges are listed below:

• 300 – 500: If your CIBIL score is less than 500, your loan or credit card application will most likely be denied. A score of less than 500 is most likely the result of multiple missed payments. It is possible to raise your credit score, but it will take time.
• 500 – 600: If you fall under this category, you may find it challenging to obtain a loan. To increase your CIBIL score, you must maintain the correct credit mix, pay your equated monthly instalments (EMIs) on time, and meet your credit obligations on time.
• 600 – 700: If your CIBIL score is between 600 and 700, lenders may offer you a loan with a comparatively higher interest rate. It may also be tough to obtain a loan with more favourable terms. A CIBIL score in this range implies that there has previously been a payment default or delay.
• 700 – 900: If your CIBIL score is between 700 and 900, your creditworthiness is strong, and you may be eligible for low-interest loans. A credit score in this area also suggests that you pay your obligations on time and are financially responsible.

What if you have No Credit History?

If you do not have any past credit-related experience, it will affect the lender’s decision to give you a loan. They may be unconvinced about your repayment capacity, resulting in the rejection of the loan application or loans extended at a high-interest rate. 

Why is CIBIL Score Necessary while Taking Loans?

With a poor credit score, your loan application may get rejected. Often, your CIBIL score helps create the first impression on the lender. You have better chances of the loan getting approved if you have higher scores. You should remember that the choice to lend is entirely at the bank’s discretion, and a CIBIL score cannot influence this decision. 

Benefits of a Good CIBIL Score

Given below are certain advantages of having a good credit score:

• Loan Amount Eligibility is Increased: One advantage of having a strong CIBIL score is that it raises the probability of qualifying for a business loan. Even if you have little collateral, lenders will look at your CIBIL score report and conclude a clean slate for repaying the loan on time. However, a bad credit score will make the lender wary of trusting you with finances.
• Better Interest Rates: Applicants with a high credit score might receive reduced interest rate offers, allowing for lower interest rates on business loans.
• Increased Chances of Obtaining Pre-Approved Loans From Banks: A bank pre-approved loan is an excellent approach to obtaining a speedy loan from a bank. These loans, however, are not available to every customer. Before releasing a pre-approved offer, the bank performs a detailed inspection of your account balances and credit score criteria.
• Provides Longer Tenure: A loan with a longer term has cheaper repayment through EMIs, which is great for your monthly budget.  A longer-term loan, on the other hand, is riskier from the lender’s viewpoint. However, if you have a high CIBIL score, you may be able to secure clearance for extended loan terms.

How can you Check your CIBIL Score?

Checking your CIBIL score takes just about a minute. Below are the steps to check your CIBIL score: 

Step 1: Visit the official website of CIBIL. 

Step 2: Select the option “Check your free CIBIL score”.

Step 3: Enter your name, email address, and password. Please include evidence of identification (passport number, PAN card, Aadhaar or voter ID). Then, enter your PIN code, birth date, and phone number when prompted.

Step 4: Click the ‘Accept and Continue’ button.

Step 5: A One Time Password (OTP) will be sent to your cell phone. Enter the OTP and click ‘Continue.’

Step 6: You will be taken to myscore.cibil.com. Click “Member Login”, and then log in to see your CIBIL score.

What is the Minimum CIBIL Score for Business Loans?

The required CIBIL score might differ depending on factors like your chosen lender, profile, business area, and other parameters. While not perfect, a credit score between 650 to 749 is considered good. However, when you approach the lower end of that range, your ability to negotiate for a better offer, in terms of interest rate or loan tenure, diminishes. While scores above 700 should be sufficient to acquire a business loan with slight challenges, a CIBIL score of 750 or higher can get you a business loan without challenges.

However, not everyone can secure suitable loans. As a result, applying for a business loan with a poor credit score is extremely tough. If your CIBIL score is insufficient, you can take a step back and work on improving your credit score before applying until you are confident of securing a loan on favourable terms. This will avoid loan application rejections and unnecessary hard inquiries, which cause your credit score to drop a few points each time a new lender checks your credit history.

If immediate cash is required, consider applying with a creditworthy business partner or backing up your repayment capacities by demonstrating the presence of significant assets that you may liquidate, if necessary. You can also choose a secured loan over a collateral-free business loan.

How Can you Improve your CIBIL Score?

Have a low CIBIL score? Well, it does not mean that everything is over. Business loans for individuals with low CIBIL scores are also available. However, there are certain ways by which you may improve your credit score. You must practise these actions regularly and keep track of your loan EMIs and monthly credit card payments.

• Make Your Payments on Time: Do not  miss an EMI or credit card payment.   You can set payment reminders to practise credit discipline. Your ability to settle existing debt will significantly impact your credit score. Additionally, payment delays for EMIs need the payment of a penalty. So, if you want to increase your CIBIL score and avoid any payment penalties, make sure you pay your bills on time. 
• Use Credit Wisely; Borrow Only as Much as Required:  Avoid incurring too much debt at once. You should keep the number of loans you apply for in a given period to a minimum. Pay off one debt before procuring another to protect your credit score from plummeting. If you take out many loans simultaneously, you will be trapped in an unforgiving cycle with insufficient finances. As a result, your credit score will continue to fall. 
• Monthly Check on your Joint Accounts: Missed payments are considered equally accountable in co-signed, guaranteed, or jointly held accounts. The negligence of your joint holder (or the guaranteed individual) may impair your capacity to obtain credit when needed. It is best to avoid becoming a joint account holder or a loan guarantor.

Conclusion

While opting for a business loan, any bank or institution requires a CIBIL credit score and CIR. Your credit score is in your credit report, a detailed document containing information about your current and previous credit behaviour. The longer and more timely repayment your credit history has, the higher your credit score will be. 

Overall, your CIBIL credit score and CIR reflect your credit rating in the eyes of any possible financial institution or bank. It is crucial to keep track of it and work on improving it, keeping in mind the factors discussed, which will enable you to borrow easily and at a comparatively cheaper rate. 

Frequently Asked Questions (FAQs)