Credit Score for Business Loan
Credit Score

Credit Score for Business Loan

Most businesses require funding at some stage of their existence. Whether it is for expansion of operations, purchasing new inventories, or increasing manpower, the solution for business owners is getting business loans. Several banks and NBFCs provide business loans. The main things banks look while sanctioning of loans are good credit score and credit history

Lenders evaluate a lot of factors before sanctioning a loan. Following are the minimum criteria that lenders look for,

  • Number of years that you run your business
  • Annual revenue
  • Profit margin
  • Existing debts
  • Credit score

Business owners with good credit score get a fair chance to get their loan applications approved. On the other hand, business owners with low credit score have doors shut from the lenders.

Minimum Credit score for business loan eligibility

There is no minimum credit score requirement for a business loan. However, lenders check the credit score of the applicants before taking a call. Each lender has different credit score specifications and is dealt on a case-by-case basis. However, it is advised to maintain a good credit score and clean credit record in order to get the loans sanctioned. At times, certain lenders might sanction your loan even when you have a lower credit score, if the other parameters such as profitability, annual revenue are high.

Types of Credit Scores

There are two types of credit scores:

  • Personal Credit scores
  • Business Credit scores

Your personal credit score is calculated based on your personal spending.Business credit score indicates the credit score of the business.Lenders might require both personal and business credit score in order to sanction the loan.

The credit score ranges from 300-900 and there are four major credit bureaus in India that calculate your credit score. Each credit bureau uses different algorithm to arrive at a number. The bureaus take into account several of these factors while calculating your score

  • Payment history
  • Credit Capacity
  • Number of active credits
  • Credit utilization ratio
  • Existing debts
Business Credit Score

For businesses that are already running, their credit scores are called as business credit scores. The calculation of business credit score is just like calculating the personal credit score where the business is treated as a person. The same criteria which are used to calculate the credit score of businesses. Factors like your past repayments for business loans, age of credit history, and credit utilization all comes into play. Most lenders look for companies that settle their dues on time and have a long credit history.

Do not mix credit scores

Please remember that personal credit score and business credit scores are two distinct identities.  It is important to keep both these identities separate from each other. Business owners should make sure they do not mix both personal and business credit history. Business loan inquiries considerably lower your personal credit score.

Why Business Credit Score matters?
  • Your Business Credit score have a major impact on loan approvals
  • It determines the interest rates that the lenders are willing to lend you with
  • It also has an impact on business insurance premiums
Tips for Managing Business Credit Effectively
  • Ensure your pay your dues on time
  • Identify errors in your credit report which can reduce your credit score
  • Follow a good credit utilization ratio, which means utilizing only a portion of the available credit, leaving a portion behind.

A strong business credit score is an invaluable asset when seeking loans for your business. By understanding the factors that influence your score and implementing responsible credit management practices, you can increase your chances of securing favourable business loan terms and positioning your business for growth and success.

Remember, improving your business credit score is a gradual process that requires consistent effort, but the benefits of better loan terms, improved vendor relationships, and enhanced financial stability are well worth it.

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