Business Loan on Low Cibil Score

Credit score which is more than 750 or as close to 900 is considered good by financial institutions. It further enhances the chances of loan approval. core below 750 makes it difficult to avail loans at comparatively low interest rates. Every credit bureau uses different algorithms to calculate the credit score. Out of a total 4 credit bureaus operating in India, including TransUnion CIBIL, Experian, Equifax, and CRIF High Mark; the credit score calculated and managed by CIBIL is considered by most of the lending institutions.

If you need a business loan on an urgent basis and the low CIBIL score is acting as a barrier in the same, you can try the following methods in such a case:

1. Contact Small Finance Banks (SFBs) or Micro Finance Institutions (MFIs)

Generally, these financial institutions mainly keep a check on the financial stability and repayment capability of an applicant, along with financials and loan defaults, if any. If they find all appropriate then sanctioning of a business loan is not a tough task for them. However, the interest rate charged could be higher side as compared to private or public sector banks.

2. Approach Non-banking Financial Companies (NBFCs)

NBFCs are the second-best option to avail a business loan if your enterprise is witnessing a low CIBIL score. They are financial institutes that do not have banking licenses, but they can provide loans and credit cards at reasonably higher interest rates. Usually, NBFCs are not that strict with the credit score of a borrower or enterprise.

3. Get Overdraft Facility from the Bank

Overdraft is a form of loan in which a total credit limit is sanctioned by the lender. The interest rate is calculated only on the utilized amount from the total sanctioned limit. If a borrower has a good relationship with the bank and manages a current or savings account with the same bank, then he/she can avail overdraft and can use it for business-related purposes. Banks generally do not check CIBIL scores before sanctioning a credit limit.

4. Apply for Secured Loan with leading Banks

Secured loan is a type of business loan in which the borrower has to submit collateral or security with the bank or lender in the form of property, equipment/machinery, gold, raw materials, stock, inventory, etc. By submitting collateral the risk of the bank reduces and makes it easy to sanction a loan, even if the borrower has a low CIBIL score.

5. Get help with Peer-To-Peer Lending

With a low CIBIL score, getting a business loan can be difficult. You can try getting a loan from peer-to-peer lending (P2P). The amount of loans offered by such entities is quite small and there is no need for any kind of collateral or security from the borrowers. However, the rate of interest charged for these loans is quite high.

If the need for a business loan is urgent, improving the CIBIL score might not be that easy. Mentioned below are some ways in which the CIBIL score can be improved and you have better chances of getting the business loan sanctioned. Below are some ways to improve your low credit score: