What is CIBIL score?
The CIBIL Score is an integral element of any loan application be it a business loan or a personal loan. After submission of an applicant’s form, the lender reviews the applicant’s CIBIL score and report. These factors help determine whether a potential borrower is creditworthy and with the ability to repay.
Why is the CIBIL score important?
When your CIBIL score is NA or NH, it means any of the following:
- Your credit history is either absent or there is not enough data to be calculated, i.e., you’re new to the credit system.
- There hasn’t been any credit activity in the past couple of years.
- All your credit cards are add-ons, and you have no credit exposure.
Is it true that you can only get a business loan if you have a high CIBIL score? The answer is No! The borrower can get a business loan if he or she meets the business loan eligibility requirements despite a low CIBIL score or no CIBIL score.
How to acquire a business loan without credit history?
The following are some ways through which you can acquire a business loan without a credit history:
1. Consider collateral-based loans
Typically, you can apply for a business loan without putting up collateral, but you must have a high credit score to qualify. As an alternative, you may need to offer security on a business loan if your credit score is poor or nonexistent. As collateral for the loan, you can pledge any of your business assets. Taking this step will make it easier for you to qualify for a loan with the lender of your choice.
2. Applying to small finance banks or microfinance institutions
In general, these institutions check the financial stability and repayment capability of a prospective borrower, as well as their financials and loan defaults, if any. You will have to check if you fit the business loan eligibility. However, they may charge higher business loan interest rates than are available to you through the regular banking channels. Thus, it would be better for you to check the EMI using the business loan EMI calculator available on the lender’s site.
3. Get yourself a guarantor
You’ll have an increased chance of getting a business loan if you apply with a co-applicant or a guarantor. If you are planning to borrow money for a business, make sure your guarantor also has a steady income. Anyone who is supposed to cosign for you should know of your intent before signing. To apply, the co-signer must complete KYC. The lender will most likely approve your loan application by reviewing bank statements and credit history if the co-applicant meets the criteria.
4. Make a loan application for a lower amount
It is advisable to avoid applying for a higher loan amount if you do have a credit history. The lender may be wary of sanctioning your loan due to doubts about your creditworthiness. Since business loan interest rates will be higher, it is advisable to apply for a smaller loan amount. The likelihood of the loan being approved increases if you do this.
5. Obtain a credit card for your business
A business credit card helps you build credit. While the credit limit on this may be lower than you expected, you’ll be able to build credit as a business, which can make you eligible for future loans. You might still qualify for a business credit card if you are denied a bank loan due to a lack of credit history.
The absence of a CIBIL score can make obtaining a business loan difficult. You may want to try getting a loan from peer-to-peer lenders (P2P). These institutions offer relatively small loans, with no security or collateral required on the part of borrowers. However, these business loans have high interest rates.
There are increased options for availing of a business loan at competitive rates even if you do not have a credit history. Find out, calculate and take advantage of the business loans available in the market to satisfy your funding needs!