If you are running your business, you will know that constant cash flow and funds are very necessary. You can face many expenses when you are running the company, such as buying essential equipment and machines, operating expenses, expanding the business, etc. For these expenses, you can apply for a business loan from financial institutions, banks, and the open market.
You should know that getting a business loan from a financial institution is not so easy. You have to go through some process to check your credit history, annual turnover, income tax return. Every financial institution has its eligibility criteria for the MSME business loan; you have to check their criteria before applying for the business loan.
A credit score is one of the essential criteria for all institutes, and this score is checked by a free CIBIL score check. For getting the business loan on excellent terms, your credit score has to be good. For more information about the importance of credit, you should read the following points.
What is a credit score?
A credit score is based on the study of your business history. The credit score includes all the payment history of your business and accounts, credit card usage, credit inquiries by the business, etc. When you apply for the MSME loan, you have to check your credit score from the authorized bureau.
In India, you will find some licensed credit bureaus by RBI who will review your credit scores and permit your business loan application.
What is a good credit score?
The credit score is the number between the CIBIL ranges which starts from 300 to 900. If your business is above 700, then it is generally considered a good credit score. If your company has a credit score of 400 or less, then the credit score is considered in a poor state.
Following are some ranges of credit score which will determine the position of your business loan approval.
0 to -1 – If your business has a credit score between 0 to -1, your business history is zero. You will not get approval for your business loan approval.
- 300 to 550 – This credit score range is known as a bad credit score. This happens because of some defaults in your payment history of the business.
- 550 to 650 – This credit score indicated that the business is in standard terms of payments. There is some possibility by which you can get new business loans for your business.
- 650 to 750 – This credit score range is a safe zone, and it will indicate that your payment history is regular concerning your business. You have a high chance of getting a loan with this credit score.
- 750 to 900 – This credit scorer range is the best range for getting new business loans and credits from a financial institution like Zip loan.
Importance of good credit score
- When you are playing for a business loan in any bank or financial institute, you have to add credit score history in your business loan documents. Every bank and institution will check your credit before giving you approval for your loan application.
- Most of the companies can also ask you about where you are purchasing your equipment or machines.
- The credit score is also important for various reasons. If you are getting a job in any department as your background check, they will ask you about your credit scores.
- If your credit score is good, then you will get a business loan from any institution at a low-interest rate.
- They will ask you about your credit score in some government or private banks before opening a new account.
To conclude, A credit score is one of the essential parts of a business loan process, which will help you get approval for affordable business loan interest rates.
Lastly, always try to maintain a good and healthy credit score, which will result in availing you the best business loan and will also serve your business purpose So it is important for businesses to work on their credit score in order to apply and avail a business loan from various sources.