A good credit score for a business plays a vital role in having financial stability. Thinking of applying for a business loan, start by checking the credit score required for a business loan. The first thing your lender will also confirm is if you have the minimum credit score for a business loan. A credit score acts as a barometer for your creditworthiness.
In this blog, we will discuss the importance of credit scores for a business loan and low credit score business loans. Additionally, we will talk about ways of securing a business loan for low credit scores. As micro small and medium enterprises (MSME) require funds for growth and expansion, we will present the minimum credit score for MSME loans.
Shriram Finance understands the importance of maintaining a good credit score. We offer a wide range of credit solutions tailored to meet the needs of individuals and businesses. We provide some popular loans including business loans, personal loans, commercial vehicle loans, used car loans, two-wheeler loans, car loans, etc. We provide both recurring and fixed deposit services. You may start your recurring deposit journey with us. If you need a business loan Apply here.
Minimum Credit Score Required for a Business Loan
As a business owner, you may require additional funds in the form of business loans or micro small, and medium enterprises (MSME) loans to sustain and grow your operations. Lenders assess your creditworthiness before passing your loan application. A good credit score for a business loan will define the interest rates and other loan terms.
Why Is Credit Score Important for a Business Loan?
Your credit score for business is a measurement of your financial responsibility and repayment capacity. Your lenders will consider the credit score required for business loans to determine the risk associated with lending to you and tailor the loan terms accordingly. A good credit score increases your chances of getting approved for a business loan and helps you secure lower interest rates. It also demonstrates that you are a financially responsible borrower.
How Does Your Credit Score Impacts Your Eligibility for a Business Loan?
The credit score required for a business loan depends on various factors such as the lender's criteria and the type of loan you are applying for. Generally, a higher credit score improves your eligibility and increases your chances of securing favourable loan terms. Let us look at different credit score ranges and their impact on eligibility:
Good Credit Score (750+)
A credit score of 750 to 900 is considered excellent. Lenders view borrowers with such scores as financially responsible individuals who make timely payments on loans, credit cards, rentals, and other utility services. With a good credit score like this, you become eligible for business loans from traditional banks, which often offer lower interest rates within the already modest range set by MSME loan criteria.
Decent Credit Score (650-749)
A good credit score for a business loan of at least 680 makes you eligible for a business loan, although not with the best interest rates. Instead of a low credit score business loan, you may explore alternative lending solutions like machinery financing or working capital loans for more immediate cash needs. However, a credit score of 750 and above is considered good enough to secure credit.
Low Credit Score (650 and Below)
Borrowers with a credit score of 650 or lower may face challenges in securing a business loan. Lenders may require additional documentary evidence to assess their ability to repay the loan. Even if approved, the loan amount might be lower, and the repayment terms could be tougher. However, proof of long-established business or stable cash flows can help mitigate the risk associated with a business loan for low credit scores.
How to Improve Your Credit Score for a Business Loan
If you have a low credit score, below are steps you can take to improve it and increase your eligibility for a business loan:
Pay Bills on Time
Ensure timely payment of all bills, including loans, credit cards, rentals, and utilities for a good credit score for business loans. Late payments negatively impact your credit score for business.
Reduce Credit Utilisation
Keep your credit utilisation ratio below 30%. For example, if your total available credit limit is ₹100,000, try not to utilise more than ₹30,000 at any given time.
Review Credit Reports
Regularly review your credit reports from major bureaus like Equifax, TransUnion CIBIL™, CRIF Highmark, and Experian. Dispute any errors or discrepancies that might be affecting your credit score for business.
Minimise New Credit Applications
Avoid applying for multiple new loans or credit cards within a short period as this can negatively impact your credit score.
Things to Keep in Mind Before Applying for a Business Loan
Before applying for a business loan, consider the following:
Calculate Your Eligibility
Use Shriram Finance's online eligibility calculator or consult with their representatives to determine the loan amount for which you are eligible based on your credit score, income, and other factors.
Compare Interest Rates
Compare the interest rates from different lenders to find the best deal. Shriram Finance offers competitive interest rates on their business loans, ensuring affordability for small businesses.
Prepare Documentation
Gather all required documents such as bank statements, income tax returns, business proof, identity proof, address proof, and financial statements for a smooth loan application process.
Consider Collateral
Evaluate whether you need collateral to secure the loan. Shriram Finance offers both secured and unsecured business loans to cater to different needs.
Conclusion
A minimum credit score for MSME business loans is essential for seeking term loans, short-term loans, or MSME loans. A higher credit score increases your chances of getting approved for a loan with favourable terms. If you have a low credit score for a business loan, take steps to improve it by paying bills on time, reducing credit utilisation, reviewing credit reports regularly, and minimising new credit applications.
Shriram Finance offers various credit solutions designed to address the unique needs of businesses. If you are searching for financial solutions to suit your personal or business needs, choose Shriram Finance for high-yielding deposit plans and loans. If you plan for a fixed deposit, check the details and apply here.
Key Highlights
- A good credit score is an important factor in getting a business loan.
- Lenders assess your credit score for business before approving your loan.
- Your credit score can be improved if you repay your bills on time.
- With a higher credit score, your chances of getting approved for a business loan with favourable terms increase substantially.
