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 3 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.

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