What Is A Good Credit Score To Get A Business Loan?

Acquiring a loan for a business in India requires proof that you have a good credit score. However, what constitutes a good credit score to raise capital through a business loan? This blog will help you understand what is the ideal credit score to get any type of business loan in India.

What Is A Credit Score?

A credit score is a three-digit score out of 900 that reflects the creditworthiness of a person to the lender during loan applications. An individual with a score closer to 900 is deemed more capable of repaying a loan than those with a lower credit score in India.

Lenders include having a good credit score as an important factor in their loan eligibility criteria. Also known as a CIBIL score, a credit score generated by the most reputed credit rating agency, TransUnion CIBIL Limited.

Almost all financial institutions include having a credit score as an eligibility factor (750+) when you apply for a personal loan, business loan, etc. The higher the score, the higher the chances of your loan getting approved.

What Is A Good Credit Score To Get A Business Loan?

While taking various types of business loans in India, the borrower is legally liable to repay the loan amount with interest to the lender within the loan tenure. However, borrowers occasionally fail to repay the loan by defaulting on the regular interest payments.

In most loan products where the lender demands pledging an asset as collateral, the losses because of default are absorbed by seizing and selling the pledged asset. However, in the case of a loan for business, where there is no requirement for collateral, the lenders are at high risk of losses if the borrower defaults on the interest payments.

Hence, lenders such as banks and NBFCs ensure that the borrower is capable of repaying the loan amount beforehand by analysing their credit score. Generally, most banks and non-banking finance firms (NBFCs) demand a credit score of 650 or more while processing a business loan application.

A higher credit score reflects the good financial health of the borrower and showcases the capability of repaying the loan within the tenure.

Why Is A Good Credit Score Necessary To Get Business Loans?

An ideal credit score increases your chances of getting a loan for a business approved without hassle and within minutes. A good credit score can also help you in the following ways:

• Your profile may get low-interest loans for business options.
• It can help you get a loan quickly, which can be beneficial to raise immediate capital.
• Your loan application can get processed without any guarantor.
• You can borrow unsecured loans for business without pledging any asset as collateral.

Credit Scores And Their Credit Availing Capability

As credit scores directly affect the loan amount which a lender is willing to offer, you must understand the credit scores and their credit availing capability.

1. Credit Score of 750+:

This score is the highest desired by lenders in India. Such a score reflects that you have a good financial history and can easily repay the loan amount you have applied to raise from the lender. A score above 750 ensures that you have good negotiating power and that the loan's terms will be flexible to offer you an ideal loan product.

2. Credit Score Between 650-750:

Although such a score is not excellent, it is good enough for lenders to consider your loan for business application with some adjustments in the loan’s terms. Such a score does not give the borrower any negotiation power, and the lender offers the loan amount on their terms. It is typical for the loan product to have a higher interest rate if the borrower has such a credit score.

3. Credit Score Lower Than 650:

Lenders consider a credit score lower than 650 as average, fair, or bad, depending on the desired loan amount by the borrower. Such a credit score provides a lesser chance for borrowers to get their loan for business application approved by the lender. For a borrower with a bad credit score, lenders may ask for a guarantor or collateral to reduce the risk of losses based on negative creditworthiness.

Avail Of An Ideal Business Loan In India From IIFL Finance

IIFL Finance is India’s leading financial services company that provides comprehensive and customized business loans in India to fulfill your capital requirement. IIFL Finance business loan offers instant funds up to Rs 30 lakh with a quick disbursal process. The loan for the business application process is entirely online with minimal paperwork with an attractive and affordable interest rate to ensure the repayment doesn’t create a financial burden.

FAQs

Q:1: Why is a Good Credit Score necessary for a Business loan?
Ans: Maintaining a good credit score reflects your trustworthiness when applying for a loan for a business which can strengthen your application and help you get approval.

Q.2: How to get a business loan with an average credit score?
Ans: The first step you can take is to start improving your credit score. If you need immediate capital, you can find a guarantor or provide collateral to the lenders.

Q.3: How much loan amount can I take from IIFL Finance through an unsecured loan?
Ans: You can take up to Rs 30 lakh as the loan amount, which is disbursed within 48 hours of the loan approval.