Tips To Get A Business Loan With A Low CIBIL Score Or Bad Credit

To show that you are a creditworthy borrower, you must have a high credit score. Unfortunately, if you have a low credit score, securing a business loan online and offline can be difficult. Nevertheless, a poor credit score does not automatically rule out your chances of obtaining a loan. Alternative loan options are available for entrepreneurs with bad credit, providing them with the financing they need to keep their businesses running.

Significance of CIBIL Score: Positive or Negative Impact on Loan Approval

Your credit score is a important factor that lending institutions consider when evaluating your loan application. It is a number between 300 and 900 that represents your credit history. It's based on a secret algorithm but mainly influenced by your loan repayment behaviour. Lenders use your credit score to check how creditworthy you are, and it's based on your borrowing and repayment history reported by previous lenders.

Therefore, maintaining a good CIBIL score is crucial for loan approvals and overall financial stability. This can be done by making timely loan repayments, keeping credit card balances low, and avoiding too many business loans online and offline applications in a short period.

The CIBIL score falls within the range of 300 to 900. Different lending institutions, such as banks and NBFCs, may have different thresholds for what they consider as "good" or "bad" scores. However, a credit score of 750 or above is considered good. With this credit score, you can qualify for loans from different lenders, including banks and NBFCs. If your score exceeds 800, lenders consider it to be excellent. Conversely, a score below 700 is typically viewed as low. That said, having a low CIBIL score doesn't mean you can't get a loan for your business.

Ways to Get a Business Loan With a Low or Bad Credit Score

If you urgently need a loan for your business, but your low CIBIL score is causing problems, you can explore the following ways to get financing and support your business the best way possible.

1: Loan Against Property

A loan against property is a secured loan option offered by non-banking financial companies (NBFCs) and banks. If you have a low credit score and are worried that it will prevent you from obtaining a business loan, consider taking out a loan against your property. In this type of loan, you can offer your office or manufacturing facility premises as collateral to secure the loan. Thus, you can obtain a loan at a reasonable rate. For example, IIFL business loans, both secured and unsecured, are offered by the lender IIFL to entrepreneurs for the growth of their business.

2: Specialised Finance

If you have a low credit score, you can consider specialised financing options for purchasing machinery and equipment for your plant. These loans require you to provide a portion of the purchase price and use the equipment as collateral to secure the loan. A specialised finance option may be a good solution for securing the funds needed to grow your business.

3: Convince Lender

Before providing a loan to a business, lenders want to assess the viability and sustainability of its business model. Having a well-constructed business plan and effectively communicating it to the lender can increase the chances of obtaining financing, even if the credit score is not ideal.

4: Add Co-Applicant

When applying for a business loan, including a co-borrower with a strong credit history, such as your spouse or a close relative, is better. This is because if the co-borrower has a good CIBIL score, the lender is more likely to have confidence in your ability to repay the loan, and it will increase your chances of getting the loan application approved.

5: Explore Other Options

A credit score of 700 or above is considered good by most of the financial institutions. However, there are also many Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs) and other lenders who may have a less stringent criteria for business loan approval online. These alternative lending options often cater to individuals and businesses with lower credit scores but can have higher interest rates or other costs associated with the loan.

6: Government Loan Schemes

To encourage entrepreneurship and create job opportunities, the central government and state governments may offer business loan schemes. These programs are designed to provide financial support to businesses. As a business owner, you can research these business loan schemes online to see if you are eligible and take advantage of their funding opportunities.

7: Settle Existing Debt

If you are in debt and have an ongoing loan, making a prepayment can be a smart financial move. By reducing your outstanding debt, you can improve your chances of getting approved for a new business loan. However, making a prepayment on your loan may also come with certain benefits and drawbacks. For example, some lenders may charge prepayment penalties, while others may offer incentives for prepaying your loan.

8: Improve Credit Score

If you aim to get a business loan online in the future and have a low credit score, it is in your best interest to work on enhancing your credit history. One way to achieve this is by making timely repayments of your loans. Consistently paying back smaller loans improves credit history and demonstrates to lenders that you are a responsible borrower.

9: Bank Overdraft

An overdraft is a flexible form of financing under which your bank allows you to borrow money, as and when needed, up to a pre-approved credit limit. To be eligible for an overdraft, you need to maintain a current or savings account with the same institution. The overdraft limit is assigned to customers depending on their cash flows and relationship with the bank.

10: Business Credit Cards

Another option for financing your business needs is to apply for a business credit card. It not only provides access to a line of credit but also offers benefits tailored specifically to businesses. However, the interest rates associated with these cards tend to be much higher compared to other financing options.

In conclusion, obtaining a business loan online with a low CIBIL score or bad credit can be challenging but not impossible. Alternative loan options, such as loans against property, specialised financing, co-borrower loans, government loan schemes, and bank overdraft, are available. Exploring all available options and effectively communicating your business plan to the lender can also increase your chances of getting approved.