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Credit scores play a significant role while deciding to offer a business loan to an applicant or not. Credit scores explain the way an individual handles money. Usually, it is interpreted that if an individual has a low credit score does not possess the necessary skills to manage finances. But even with a low credit score, an individual can get a business loan.
If you are an individual who has a good business credit scores, then there are more chances of your business loan getting approved. It is usually seen that there are credit scores and credit reports for every business. Like the personal credit scores describe the creditworthiness of an individual, the credit scores of a business describes the creditworthiness of the business.
CIBIL Score for a Business Loan
The Credit Score of a Business is usually in a 0-100 number system. There are some factors that are considered to build up a business credit profile. These factors include the frequency of pay your bills, your credit history, and also the credit that is available. Many lenders consider 75 as a good score and any score less than that makes it difficult to acquire a business loan.
Personal Credit for Business Loans
Personal credit scores for business loans are the same way as other loans. A Credit Score less than 640 means that it will be difficult for you to get a business loan from bigger banks. If your credit score is 700, there are better chances of getting an approval if you are planning to use your personal loan for the purpose of business.
If you opt for a business loan, it is important to have a credit score close to 800 because business loans require higher credit score than personal loans.
The report that displays the credit history of a business is known as Company Credit Report (CCR). This report is a record of a company’s credit history. CCR is developed on the basis of the data that has been provided to CIBIL by the banks and other lenders. It has been observed that banks the company credit reports in order to calculate and process the loan applications.
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How Are Business Credit Scores Used
Often lenders try to ascertain how well your business has been repaying their debts. After this ascertainment only, the banks approve your business loans. This is when the existence of business credit scores is counted. The higher your credit scores, the more trustworthy you will be considered from the lender’s point of view. Lenders will check your company’s business credit reports so that they get more detailed information about your business’s financial history.
Importance of Checking Business CIBIL Credit Score
As you are a business owner, it is your primary responsibility to regularly review your company’s financial information. This review of your financial information includes the review of your business credit scores & business credit reports. The credit score is always fluctuating. Sometimes your credit score is high and sometimes it is low. This is the reason why creditors assess the creditworthiness of an individual. Errors in the credit report can sometimes occur because of some calculation that is incorrectly done.
The other error that could occur is the possibility of a business not having a credit history that is enough for the warranty of high credit scores. If any other error is found, the credit agency should be contacted for getting the correction done. In case there are no errors, the credit scores of a business can be improved further by making the payments on time and reducing the credit utilization ratio of the company.
How Can I Improve My Business Credit Score?
It is actually confusing to understand the exact usage of business credit scores. But, it is indeed important to maintain good business credit scores. The following points have to be kept in mind while trying to improve your credit score for a business loan purpose.
- Maintain a credit utilization ratio around 25%
- Pay all your business bills on-time.
- Open Multiple Credit Accounts.
Parameters for Evaluation
If you own a business and you want to acquire a bank loan, you need to acquire your CIBIL Company Credit Report (CCR) and understand the types of business loans that can be offered to you based on your credit history.
Factors that Decide the Business Loan Credit Scores
There are various factors that decide the credit score of a business. Given below is the list of factors.
- The length of Credit History
- Outstanding Debts
- Credit utilization ratio
- Size of the Business or Company
- Payment history
- Public records like judgments, bankruptcies and liens.
- Industry risk.
Your credit history should be extremely strong if you want to qualify for a business loan. It is always advisable for the business owners to build up a business credit history before applying for a loan.
Things to Be Avoided While Seeking A Business Loan
It is usually seen that some business owners mix up their personal credit history with that of their business. This will lower your credit score to some more points and it also gives an impression that the business could not build up the business credit history.
Tips to Follow
If your business has a low credit score and you are in need of a business loan, then you should try for acquiring a loan from smaller banks. In these cases, the interest rate that you will be charged for the loan will be high, but you will be provided with a business loan for sure.
If a business owner does the right things to build up the credit profile of the business, the business will flourish. This will not only open up new opportunities of financing but also help the business grow.
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