Minimum CIBIL Score for Business Loans

Securing working capital is essential to setting up a business and making it profitable. A business needs funds to keep itself operational, hire staff that is aligned well with the company’s goal, acquire machines and technology that will help it grow and invest in its marketing to increase its visibility.  

People who need funds for business expansion can avail of a Loan Against Property for business. Business loans are loans designed to fulfil the working capital requirements of a small company. These loans can be used to cover temporary shortages, maintain cash flow, hire staff, acquire technology or equipment, etc.  

Also Read: Why Loan Against Property Can be a Good Credit Option for a Startup Business? 

A CIBIL score is one of the key factors that decide whether a lender will sanction or approve a business loan for a company. In this article, we discuss business credit score, its importance, and the minimum credit score required for a business loan.  

What is a Company Credit Score? 

Like individuals have a credit score, companies also have a credit score called the company CIBIL score. The company CIBIL score indicates a company's creditworthiness and is calculated based on various parameters, such as a company's financial health, payment history, and existing debt. Lenders obtain this score from the company's credit report, which contains other information as well.   

A company's credit report gives background details about a company, such as the name of the parent company, year of establishment, and existing subsidiaries. The company credit report also mentions the company's CIBIL score. Depending on your preferred credit agency, your company's CIBIL score will vary between 300 and 900. Borrowers should know that if their lender obtains their company's credit report from TransUnion, the credit rating will vary between 1 and 10, with 1 being the highest credit rating a company can get. However, if a lender chooses to go with CRIF High Mark India, the company credit rating will vary between 300 and 900, with 900 being the highest score a company can get.   

Also Read: Everything You Should Know About Your CIBIL Score

Now that we know what a company's CIBIL score is, let us look at the importance of this score and understand why lenders check this score before deciding on any business loan application.   

How is CIBIL Score Important for a Business Loan?

The company CIBIL score or the company credit report (CCR) is indicative of a company's financial health and repayment capacity. Lenders assess a company's financial health based on its current income, current sales, existing debt, etc. The CCR allows a lender to understand whether the company will be able to repay the loan that it wishes to avail of and if lending funds to the company would involve risk.  

When it comes to businesses, a company's assets including land, factory stores, machinery, vehicles, etc., play a key role in deciding if a company should be sanctioned credit. Having a high number of assets increases one's chances of obtaining credit on favourable terms. The company CIBIL score also tells lenders about the assets that a company has.   

The CCR also discloses various financial ratios of a company, such as gross profit margin, return on sales, liquidity, and leverage inventory. These financial ratios also help lenders assess a company's financial health and ability to repay the loan.   

A company's CIBIL ratio also depicts its payment history. You may have availed of multiple loans when running a business. In such cases, lenders can focus less on the number of loans taken previously and more on the repayment history — specifically, how many loans have been successfully repaid and how many are yet to be repaid. The CIBIL score for business loans is important as it indicates if a company has cleared loans on time and can be trusted with future repayments.  

Read Also: Tips to Help You Improve Your CIBIL Score

Lastly, a company's credit report also shows how old or new the company is. Old companies have had the chance to build their repayment history and credit score and can be considered more reliable.  

What is the Minimum CIBIL Score for Business Loans? 

Typically, to avail of a Loan Against Property for your business, a CIBIL score of 750 or above is required. Here is how a CIBIL score of 750 can prove helpful when applying for a business loan:  

Quick Approval : 

If you are applying for a business loan, you may need funds immediately to address your financial requirements. A strong CIBIL score can help you secure quick approval, ensuring you get the financial support you need to turn your vision into reality without delays. 

Low Rates of Interest :

One of the key factors that affect the feasibility of a loan is the rate of interest offered. Borrowers with good CIBIL scores are more likely to secure competitive interest rates, ensuring manageable EMIs and the cost of borrowing. 

Negotiating Power :

With CIBIL scores of 750 and above borrowers can negotiate with their lenders for better terms and conditions, such as lower interest rates, higher loan sanctions, and longer repayment tenors.   

Also Read: Tips to Maintain Your Business CIBIL Score Above 700 

How to Maintain an Ideal Score for Business Loans? 

An borrowers can maintain an ideal CIBIL score by practising the following:  

1. Always Pay All the Bills on Time 

When individuals miss EMI payments, their credit rating takes a hit. Similarly, a company's credit rating also decreases when the company misses its EMI deadlines. Missing too many EMI payments leads to a low credit score, which in turn, reduces a company's chances of availing of credit in future. Thus, to maintain a good credit rating, companies should always pay dues on time.  

2. Keep Your Credit Utilisation Ratio Low 

Yet another easy way to maintain a high credit rating is to keep your credit utilisation ratio on the lower side. A low credit utilisation ratio not only helps in maintaining a healthy credit score but also demonstrates responsible financial management to lenders. 

3. Take Loans Only if Necessary 

Owing to several expenses, company owners can rely on loans to meet business requirements. However, one should take a loan only when necessary. This will help in maintaining financial health by minimising debt obligations. 

4. Take a Small Loan and Pay it Off Diligently 

If you need a substantial business loan but your credit score is low, you can try improving the score by availing of a small loan and paying it off responsibly. This will also help you get approved for a loan at favourable terms.  

5. Do Not Close Old Loan Accounts 

When a business closes a loan account, its entire credit repayment history is deleted. Thus, in the absence of old accounts, a business has no credit history and hence, no credit score or report to show. Therefore, businesses should not close old accounts and company credit cards.  

6. Get Errors Rectified Quickly 

Sometimes, a company's credit score may decrease because of errors made by other companies and institutions while reporting financial statements. Therefore, companies should check their credit report regularly for errors. If you see any errors, report those to a credit agency immediately. Know that rectification takes some time to reflect on a credit report. 

Read Also: Know How Mortgage Loan Affect Your Cibil Score

How to Check CIBIL Score for Free?

Borrowers can check their CIBIL scores by visiting the official website of CIBIL and following these steps for a free CIBIL score check:  

1. Access the CIBIL portal and log in. 
2. Click on ‘Check Your CIBIL Score’ option. 
3. Choose a subscription plan as per your preference. 
4. Set up a login password for your account. 
5. Provide your PAN and ID details for verification. 
6. Complete the payment process and authenticate using OTP or email. 
7. Enter your personal details to view your credit score. 

Also Read: How to Check, Calculate, and Improve CIBIL Score?

Maintaining a strong CIBIL score is essential to secure a Loan Against Property at favourable terms for business. Regular repayments, responsible credit utilisation, and a balanced credit mix play key roles in improving your score. By following these practices, businesses can increase their creditworthiness, ensuring smoother access to financial support for growth and operational needs.