Unlocking Business Opportunities: Minimum CIBIL Score for a Loan - Loan Trivia


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Monday 22 January 2024

Unlocking Business Opportunities: Minimum CIBIL Score for a Loan

In India, the last decade has seen the emergence of an increasing number of budding entrepreneurs who have changed the landscape of this country with their innovative business ideas. For businesses to taste success, access to credit is mandatory and credit becomes available only to those who have a good credit score. 

What is Credit Score and Why is it Important?

When an individual applies for a loan, lenders do their due diligence. They ascertain the applicant's repayment capacity and creditworthiness and sanction a loan only when they are convinced of the individual's repayment capacity. The same goes for a business. When a lender receives a business loan application from a business, one of the first things that the lender does is check the company's business credit score as it is indicative of their creditworthiness. A business credit score is a number assigned to a company by credit information agencies based on information collected from financial institutions and factors, such as the business' repayment history, hard enquiries under its name or the number of times they have applied for credit, the age of their credit history, the kind of credit mix they have and their credit utilization ratio. A business credit score between 750 and 900 is considered excellent and a credit score between 700 and 749 is considered good. The closer a business' credit score is to 300, the more difficult it becomes for it to get access to credit. 

The minimum CIBIL score for business loans is 700. However, if a business credit score is between 750 and 900, getting access to credit becomes far easier. 

Let us now look at how an excellent credit score can help businesses unlock new opportunities and prove beneficial.

  1. Low Interest Rates 

When it comes to loans, the rate of interest that one gets on a loan is crucial as it affects the affordability of the loan as well as the total cost of borrowing. A good credit score gives businesses high negotiating power, thereby allowing them to ask for better or lower interest rates. Getting access to loans at low-interest rates helps businesses increase their profit margins.

2. Better Loan Terms and Conditions 

Businesses with a high credit score cannot only request for lower interest rates but they can also ask for higher loan sanctions to meet their financial requirements and a longer repayment period to ease the burden of loan repayment. 

3. Getting Business Becomes Easier 

These days, not just lenders but also businesses check other businesses' credit scores before agreeing to do business with them. A high credit score increases other companies' confidence in you and your ability to deliver successfully. Thus, companies with a good business credit score get more business and more opportunities to grow.

In short, having a good business credit score can help you in more ways than one. So, all businesses must try their best to maintain an excellent credit score. Paying their credit card bills and loan EMIs on time, maintaining a low credit utilization ratio and a healthy mix of both secured and unsecured loans and the hard enquiries under a business' name to a bare minimum will do the trick.

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