Apr 16
business loan with credit score

Options for business loan with a low CIBIL score

Taking out a business loan is a tall order in general but attempting it with a bad credit score is a herculean task indeed!  No big surprise, given that a borrower’s credit score is the first thing a lender checks to ascertain his repayment capacity.

Business entities often need financial assistance for diverse activities like expansion, day-to-day operations, buying raw materials or boosting their working capital. The best solution is to acquire a loan from a lending institution at a fixed interest rate for a specific tenure. Since collateral is not mandatory for this kind of funding a good CIBIL score can be a big advantage.

What is a CIBIL score?

So what is a CIBIL score and why is it important? In simple terms, it reflects one’s creditworthiness, history of debt payments and financial commitment. It is a three-digit number determined by the credit bureau on the basis of data submitted periodically by banks and financial establishments. The credit score ranges between 300-900 points.

A 750 + rating is deemed excellent as it denotes an impeccable track record of an individual’s current and past credit. A good score ensures sanction of fast business loan at the best interest rates. Conversely, a poor credit rating can lead to rejection. But wait, as all is not lost, so don’t get disheartened! You can get funding despite a low CIBIL score. Let’s look at some options.

Joint loan:

Apply for a joint loan. You could ask your spouse or a family member (mother, father or relative) boasting a good CIBIL score to sign as co-borrower. The lender will make a decision of expending funds for your business based on the combined rating. While your poor score may be viewed as a risky, the positive credit history of your co-signer will compensate for the potential threat.

Get a guarantor:

In case you have a less than perfect credit rating, roping in a guarantor with a good rating is a good bet. It will automatically improve your eligibility criterion. Assurance about repayment nullifies the risk of defaulting, thereby enhancing your odds of procuring a loan for business needs.

Pledge collateral:

If your credit score is poor, opt for a secured business loan. Pledge assets like property, jewellery, fixed deposit documents as security for funding. By putting up collateral you can reassure the lender of your seriousness. Moreover, he has the assets to cover his losses in case of default, which gives him the confidence to sanction a loan. Another benefit of secured loans is better interest rates.

Peer-to-peer lending platform:

Peer-to-peer (P2P) lending is another alternative to gain funding for businesses. It is an online lending marketplace that doesn’t rely solely on credit rating but evaluates the borrower profile on various parameters to determine eligibility.  P2P is a wonderful channel that facilitates the exchange of loans between investors and borrowers without any security.

While these measures may help you get financial assistance in the form of business loans, it’s extremely important to raise your creditworthiness, to avoid being shown the door in the future.  For starters try becoming a responsible borrower by repaying your debts on time!


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