Quick Link
Muthoot Blog Banner
BLOG

Stay

Updated at

All Times

HOW MUCH CIBIL SCORE IS REQUIRED FOR A BUSINESS LOAN?

In a dynamic environment like today, business financing may be tough on some business owners for the people who have initially started their business. As a business owner, you may often find yourself in a situation where you think about the best possible way to fund your business. This is when the business loan comes in handy, as it allows every business owner to use their small and medium-sized enterprises. Business has become very important these days because it allows you to continue doing business even when you are short on funds. The Cibil score is important in the eligibility of business loans because lenders want to know if your company is capable of repaying the loan.

What is Business Loan?

A sufficient quantity of money is required by businesses to support initial costs or to pay for growth. As a result, businesses obtain business loans to obtain the necessary financial help. A business loan is a loan that the firm is required to repay according to the terms and circumstances of the loan.

Types of Business Loan

There are typically two types of Business Loan that any lender would offer:

  • 1. Secured Business Loan

Secured business loans are those that have some form of collateral backing them up. Something pledged as "security" for loan repayment is referred to as collateral. If you are unable to repay your loan, the collateral may be forfeited. Because you physically have something to lose, this makes the loans structurally riskier than no collateral loans.

  • 2. Unsecured Business Loan

You may not have collateral to offer at times, or you may simply be looking for a less risky collateral loan. An unsecured business loan is one that a lender makes based solely on the borrower's creditworthiness and not on any type of collateral.

Banks and other legitimate financial institutions also provide unsecured loans, which are typically used for credit card purchases, education loans, some home improvement loans, and personal loans, also known as signature loans.

Importance of Good Cibil Score for Small Business

You may require funds to smooth out cash flow issues, lease factory space, or purchase manufacturing software. In all three cases, you will require a significant sum of money. A high credit score demonstrates that you are responsible for borrowed funds, putting you in a position to negotiate a larger loan amount. The significance of a CIBIL score cannot be overstated because it determines a person's or a business's creditworthiness. It is an excellent tool for financial institutions to use in managing their operations. When you take out a business loan, your payment history has an impact on your credit rating.

In order to get a business loan, a minimum of 750 and above CIBIL score is required. For lenders, it is very essential to keep a check on your credit score. Businesses necessitate large sums of money. These businesses, as well as the job opportunities they create, are a part of the economic lifecycle. Loan fuels such businesses and good loans with low-interest rates enable business owners to engage in healthy economic trading. However, not everyone is in a position to obtain good loans. As such, business loans for low credit scores make it very difficult to apply for the loan.

Benefits of Good Cibil Score

It is very essential to have a good credit score as lenders check the creditworthiness of the person applying for their business loans whether it is a startup or fully-fledged business. The following are the benefits of good credit:

  • Increases the Eligibility for Loan

One of the benefits of having a good CIBIL score is that it increases the chances of qualifying for a business loan. Even if you are low on collateral, the lenders consider your CIBIL score report and a clean slate for repaying the loan payment on time. This is why it is very important to have a good credit score as a poor credit score, it’ll make the lender cautious and hesitant in trusting you with the funds.

  • Low Rate of Interest

After you’ve been eligible for the loan, considering your good credit history the applicant qualifies for negotiating the interest rate, amount rate and tenure. If you have proven your creditworthiness, it will be favourable for you as you can easily get an MSME business loan as the terms can greatly reduce the total cost of the loan, which can help you maintain your financial stability.  As it gives you comfort to repay according to your convenience, and save on interest payout by choosing shorter tenures.

  • Longer-term Loan

Having a good credit score gives you the ability to have a longer repayment period. By choosing the long-term loan it will decrease the repayment load, allowing you to return the loan amount on schedule.

You can also check your CIBIL score online by visiting the official CIBIL website and submitting the application form. As you may keep a regular rain-check on your credit score because it is a major deciding factor in loan application acceptance.

Keeping a good CIBIL score will improve your chances of getting your Business Loan approved. A credit score of 750 is generally considered acceptable for getting your Business Loan application approved. Improving the CIBIL score takes 4 to 12 months. Use finance calculators to better plan your EMIs. Muthoot Finance provides business loans to those who need them to start their own businesses in order to meet the demands of these companies.

Subscribe to our newsletter

Close Icon

help us serve you better