How To Get A Personal Loan For Business With Low CIBIL Score?

Managing the affairs of a business and to scale it up requires capital resources, and a loan is often the most accessible and many a time even more suitable form of finance than equity. This is because, a loan doesn’t dilute the equity holding of the owner and he or she retains control of the business enterprise.

There are various forms in which a business owner can avail a loan for the venture. These include specialised business loans, be it secured or unsecured; gold loan; and even a personal loan.

A secured business loan can be against a physical asset owned by the enterprise, such as a manufacturing facility or machines or even a self-owned office property besides others such as loan against shares and so on.

An unsecured business loan is often considered the most suitable option for small business owners looking to raise money. These collateral-free loans, however, have an upper ceiling in terms of the amount one can borrow and carry relatively higher interest rates.

Then again, lenders also insist on some other conditions for providing a small-sized business loan without any security. For instance, they insist on the business having been in operation for a minimum period. This means if the business is just, say, just four months old, the entrepreneur may not be able to avail a small business loan.

This is where a personal loan can come in handy.

Personal Loan For Business

While a business loan cannot be used for meeting personal expenses, there are no such restrictions for using money sanctioned for a personal loan for business purpose. These loans, however, may come with a higher interest rate compared to a business loan.

But they help get around the criteria of minimum vintage of the enterprise and also other related factors that may not be met given the state of affairs of the business with respect to its revenues and so on.

CIBIL Score

Just like an unsecured business loan, a personal loan is advanced by lenders based on their risk perception and their assessment of a borrower to repay. This is via the credit score, or CIBIL score, of the business owner.

The score lies in the range of 300 and 900; the higher the number, the better the credit history profile and vice versa. In general, a score between 720 and 750 or more is seen as a good credit score and clears the first hurdle for availing a personal loan.

Personal Loan For Business With Low CIBIL Score

The good news is that one can get around the problem of a low CIBIL score to avail a personal loan for financing a business.

• Bring In Co-Borrower:

A business owner can rope in a co-applicant, such as their spouse with a good credit history and comfortable CIBIL score. This does not only counterbalance the low credit score of the business owner as the primary applicant to boost the chance of getting the loan approved but also increases the eligibility for relatively higher amount of personal loan.

• Lower Amount:

Another way to get a personal loan approved despite having a low score is to seek a smaller amount. Lenders may not approve, say, a personal loan of Rs 10 lakh with low credit score but they may well agree to lend Rs 5 lakh. If that helps in meeting the business requirement, one can still get a personal loan for business.

• Income Proof:

While a low credit score could raise a red flag from past credit repayment behaviour due to a missed payment for a credit card or another loan, one can still convince the lender that with their current income, they can actually meet the equated monthly installment (EMI) payments easily.

Conclusion

While availing a business loan is appropriate if the money is to be used for a venture, at times a business owner may not meet the conditions for an enterprise loan. This is especially true if the business is fairly young. But one still has the option to borrow by taking a personal loan. Such loans do not come with use restrictions and can be utilised for business purposes.

Lenders assess such personal loan applications by CIBIL score and a score in the 720-750 range or higher is considered ideal. But a businessperson with lower CIBIL score can still avail a personal loan by following some practices such as seeking a lower sum, bringing in a co-applicant with a good credit score and showing the lender that their monthly income is more than enough to meet EMI dues.

While some established banks may have strict conditions for loan approvals, NBFCs such as IIFL Finance offer greater flexibility, faster turnaround time and easier repayment terms.

IIFL Finance offers personal loans of up to Rs 5 lakh with minimal documentation and swift approval in just about five minutes at low interest rates.