Several factors are taken into consideration while providing business loans. CIBIL score is one of them. CIBIL scores are calculated on a scale between 300 and 900, with 900 being the highest and 300 the lowest. If the borrower wants to avail a business loan from a traditional bank or SBA loans, a CIBIL score of 680 or higher is needed, 630 for business lines of credit or equipment financing, a credit score of 600 for short-term funding and 550 for merchant cash advances. Your score will also influence the interest rate and other loan terms.
CIBIL scores are an essential factor in the loan underwriting process since it reflects the eligibility of a borrower for securing a loan. It evaluates your creditworthiness based on your credit history, repayment pattern of dues on prior loans/Credit Card, rate of the loan application, number of current loans, and many other such factors. The greater the credit score, the lesser is the possibility of facing rejection.
Below is the breakdown of high and low CIBIL scores:
- 700 or above: A credit score in this range will attain you just about any business loan option on the table. With a good credit score of 750 or, higher can grant you with a smooth and hassle-free loan approval process. The borrower can also negotiate on the loan amount, rate of interest and avail the best available loan offer. If your credit score comes in the range of 700 to 749, you could still avail some of the best business loans like bank loans and SBA loans. You will need to come up with stronger business credentials to access the best terms.
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- 600 to 699: Business loan lenders usually consider a credit score that falls between 640 and 700 to be decent—but not excellent. The chances of getting a loan with a score in this range exist. But they are lower than those with a score of 750. If you’re on the lower end of this spectrum, the situation considerably gets more problematic, and now you have limited options. You’ll likely need solid business credentials to qualify, such as several years in business or significant annual revenue. In this case, lenders consider many other factors like monthly income, employment stability, other current loans, etc. to assess the prospects of receiving loan repayments from you and decide on your business loan eligibility accordingly. If your business is newer or lower-volume, then your best funding sources are short-term loans and invoice financing.
- 599 or below: A score below 600 greatly reduces the chances of securing a loan as it conveys the borrower’s poor credit history to the lenders. A personal credit score of above 550 might be hard to qualify even for the most affordable substitute lending options. Unless you have a long-established, high-volume, and profitable business, most medium-term or equipment financing lenders will not be keen to lend to you. You are still eligible for many invoice financing companies and merchant cash advance companies, though. A credit score of 550 or below is lower than most of the lenders’ minimum credit requirements. Therefore, there is a high possibility of loan applications getting rejected. As a result, your business loan options will be completely limited by your personal credit. If a borrower is not able to secure a loan with this score, he/she has to improve their credit health to be eligible for a loan.
While it’s necessary to have a good credit history, you need to remember that your CIBIL score is just one part of your business loan application. So, it would help if you made sure other aspects like your business credentials are strong too. This way you will have the best offers to choose from.- look for lenders who understand that each business has unique financial needs and provides you quick, hassle-free and customized online business loans.
