How Do Business Loans Affect Your CIBIL Score? How Can I Raise My CIBIL Score Fast?

Business loan can be helpful for a businesses to manage their operations or daily activities smoothly. Read to know how business loan can affect your Cibil score and how to raise Cibil score.

13 Oct,2022 10:44 IST 22 Views
How Do Business Loans Affect Your CIBIL Score? How Can I Raise My CIBIL Score Fast?

Funding is the lifeblood of any business. However, a business loan can help grease the wheels and ensure smooth operations without liquidity. Your business must fulfil specific eligibility criteria to qualify for the loan, including a good credit score. However, which credit score is applicable for the application? And does it affect your credit score?

This article answers these questions in detail, including how to increase your CIBIL score quickly.

What Is A CIBIL Score?

It is a three-digit score derived from your credit activity. Your credit report highlights all your credit details and repayment history. Typically a CIBIL score ranges between 300-900. A credit score of 750+ is good and can help you get a favourable loan amount and terms.

What Is A Business Loan?

Most businesses can be capital-intensive and require funds to launch, expand, and grow. A loan taken to fund your business is known as a business loan. It reflects on the liability side of the company’s balance sheet and must be repaid with interest.

Can A Business Loan Affect My CIBIL Score?

An individual's credit history determines their creditworthiness. Similarly, a Business Credit Report (CCR) determines a business's creditworthiness. However, different types of businesses have varying impacts on credit scores.

• Proprietorship:

In a proprietorship business, the owner's credit score is the base business’ credit score. Additionally, the law stipulates that sole proprietors are responsible for all company debts. Therefore, a business owner's default on repayments will negatively affect their credit score.

• Partnership:

The CIBIL score in a partnership business works similarly in the proprietorship business. It considers the partner’s credit score too.

• Limited Company:

A limited liability company has its own identity. Therefore, no partners or shareholders are responsible for any company debt. However, it does not mean lenders don’t check personal creditworthiness for business loans.

How Can I Raise My CIBIL Score Fast?

Below are some ways to help you improve your credit score.

• Timely Repayment:

Ensure you repay the loan on time with timely EMI payments. Defaulting on your payments can hurt your credit score.

• Avoid Too Many Loans Simultaneously:

Taking too many loans simultaneously can affect your creditworthiness. It may appear to the lenders that you are living off only loans, and lenders might question your repayment capacity with so many dues to clear.

• Choose A Lender With Lower EMIs:

Business owners must research and compare the various lenders and select the appropriate one after a proper cost-benefit analysis.

Frequently Asked Questions

Q.1: Who can avail of a business loan?
Ans: Typically, the eligibility changes from one lender to another. But most lenders provide a business loans to professionals and self-employed. The segments covered include

• Sole Proprietorship
• Partnership Firms
• Private Limited Companies
• Closely held Public Limited Companies
• Societies
• Trusts
• Hospitals, Nursing Homes, Diagnostic Centers, and Pathological Labs.

Q.2: Can I get a business loan without pledging anything?
Ans: Yes. You might be eligible for an unsecured, collateral-free business loan.

Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.

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