The Minimum CIBIL Score You Need for a Business Loan

If you are running a business, you would know that all businesses need capital in the form of loans to take care of expansion and other plans. However, it is not easy to avail yourself of a business loan these days. Businesses get approved for a loan only when they meet their lender's eligibility requirements and one of these key eligibility requirements is the business's credit score. Like individuals have credit scores, businesses also have credit scores. A business credit score is a three-digit number between 300 and 900 that indicates their creditworthiness and repayment capacity. Lenders prefer lending money to businesses that have a credit score of 750 or above. However, businesses that have a credit score of 700 or so also get approved for a loan but these businesses are not always offered the best loan terms and conditions. So, businesses must try and maintain a credit score of 750 or above. If a business does not have the ideal credit score, here are a few things they can do to enhance their credit rating.

1. Build a Strong and Clean Repayment History

If you want to build and maintain high credit score, the first thing you must do is build a clean repayment history. The repayment history makes up almost 35% of one's credit score and therefore, is one of the key factors that determines a person's credit score. Businesses that need access to credit must maintain a high credit score by paying loan EMIs and credit card bills on time. If you deal with many deadlines constantly, you can consider setting up auto payments. You can even consider setting up reminders to help you remember all the important dates. This will help you avoid missing all important due dates.

2. Do Not Apply for New Loans if You Already Have Too Much Debt

Lenders do not want to lend money to borrowers who already have too much debt for the simple reason that if someone already has too much debt, paying one's EMIs can become difficult. Therefore, if your business' debt-to-income ratio is already high, applying for a new loan will lead to loan application rejection. If a loan application from your business has been rejected recently, you must refrain from making new loan applications as doing so would portray you to be credit-hungry and lower your credit score.

3. Apply for a Loan and Pay it Off Without Defaulting

If your is a new business and you don't have a very long credit history, you can build your credit score by availing your business of a small loan and then paying it off without defaulting. This will help you build a good credit score.

4. Keep a Check on Your Business's Credit Report

Sometimes a business's credit score can go down due to wrong information passed on to the credit information bureaus by financial institutions. Therefore, businesses must check their credit report from time to time and make sure there are no errors in one's report that may be bringing down their credit score.

These are a few very simple things that you can do as a business owner to improve your business's credit score and enhance the chances of getting approved for a business loan.

Don’t forget to read our article on CIBIL Score Range to Assess your Creditworthiness.