An excellent credit score is highly valuable and important for all business loans. A good credit score indicates good financial health and also shows how creditworthy you are for a business loan. This will also show the amount of risk that might occur to the lender for offering a loan to a borrower or the business owner. High credit scores increase the probability of getting the loan on good terms and a low credit score indicates getting a business loan with higher interest rates with a lower tenure.
By this article, you can know why your credit score is important and some of the tips to get your credit score up for a business loan.
Understanding the importance of credit score
A credit score is an individual’s creditworthiness ranging in numerical numbers from 300 to 900. It is based on credit history with regard to borrowing, behavior in repaying, and general management of debts. This explains why a good credit score would be important in availing of business loans.
Loan Approval: One of the steps that lenders take to know whether to approve your small business loan is reviewing your credit score. A good credit score shows the past performance of your repayment on borrowings and enhances the trust of the lender on the part of the borrower, which increases the chance of approving the loan.
Interest Rates: A good credit score attracts low-rated interest from the lender. This may save you some amount of the overall cost of the business loan.
Loan Amount: Having a high credit score increases your chances of getting a higher loan amount and the loan amount you need. In some cases, the lender can provide you with a loan with lower interest without any collateral.
Terms: There are high chances of getting a business loan with longer tenure if the business owner has a good credit score.
How can any business owner could improve their credit score to apply for a business loan?
Below are some of the tips to get a better credit score.
On-time payments: Make sure to pay the bills or your EMIs on time, a single instance of a late payment can significantly drop your credit score. Do consider setting up reminders or enrolling into setting up automatically to pay your bills through your mobile online.
Reduce outstanding debt: Try cutting down on unwanted expenses and focus on clearing the overall personal or business debt. Be sure to pay all credit card bills and small business loan expenses on time. Seek financial advisors who will help to plan a better strategy to close debt efficiently.
Regularly check your credit report: Your credit report may sometimes contain errors that harm your score or fail to reflect your true credit rating. You can obtain your credit reports from these few significant credit bureaus—CRIF, High Mark, Experian, Equifax, and TransUnion, CIBIL—and download the reports to check for any errors. If you find any errors, discuss them with your lender and financial advisor in attempting to resolve the issues.
Negotiate with lenders: Try to negotiate with your lenders for better loan amounts and interest rates. If the lender provides a loan amount lower than you require, you might apply for another loan with a different lender. This can lead to unwanted additional charges and interest, resulting in an overburden of EMIs and affecting your credit score in case of late payments.
Seek professional advice: Consider seeking professional advice from a credit counselor or financial advisor who can help in case you are lost on where to initiate improvements in your credit score. They help you with tips for coming up with a strategy that works best for your situation in improving your creditworthiness.
Conclusion
It’s very important to keep a good credit score to get the required business loan terms. A high credit score helps to increase the chance of getting approved for a MSME loan with lower interest rates and higher loan amounts. It reflects your financial reliability and significantly impacts your ability to manage and repay borrowed funds on a timely basis.
Applying for a loan through NBFCs can be a great choice as they not only offer customized loan products but also provide valuable guidance throughout the loan process and after providing the loan as well. They provide good assistance in restructuring existing debts in case required, reminding you to maintain a sufficient balance in your bank account via phone call, accept payment online, etc.
