Baseline business loans demand excellent credit scores, usually of 750 or above. But if a credit score falls short of the mark, business finance may be difficult to obtain.
Why? Because lenders review credit scores to determine the amount of debt a business can service with ease. And decide the interest rate, loan terms and conditions based on the credentials at hand. So, borrowers who showcase financial responsibility can secure better loan terms from the lender.
When a company wants to avail of a business loan, they should ideally check with a credit bureau first and secure a copy of the credit information report or CIR to understand where the business stands.
In India, businesses can obtain a CIR from credit bureaus like Crisil, TransUnion CIBIL, Equifax, CRIF High Mark, and Experian.
A CIR contains information like:
- Monthly EMI payments
- Defaulted payments
- Personal information (PAN, contact number, etc.)
- Enquiries made by credit institutions
- Account information (Credit type, current loan balance, status, etc.)
- Past repayment details
Below, we have the lowdown on how to improve business loan credit score favourably.
Lower the credit utilisation ratio
Business credit utilisation ratio – the portion of total credit available for use – should ideally fall below 30%.
To illustrate: if a business has a total credit limit of Rs. 2 lakhs, the credit use at any point of time should not exceed Rs. 60,000 (30% of 2,00,000).
If the ratio floats above the ideal number, your business can suffer from a low credit score. Thus, to maintain the ratio optimally, a company should reduce the use of credit cards. And keep the total spend within the credit limits.
Repay the dues timely
Since a CIR records extensive details of all the credit taken, businesses should pay the dues as scheduled. Not only will the timely repayments make for a flawless credit report but also keep the credit score top-notch.
And the bottom line: easy access to business finance at the most affordable interest rates and convenient loan terms.
Update credit information
Now ideally, your CIR will be updated timely with every business loan repayment; however, inaccuracy can occur from time to time. On such occasions, credit information updates are pivotal to maintain a favourable credit score.
Always monitor your CIR to keep up with essential information updates. If any recent repayment information does not reflect on the fine print or shows a discrepancy, raise disputes with the credit institution to instantly consolidate the new details.
Also, look out for:
- Multiple credit accounts
- Debt defaults
- Poor consumer feedback
- Negative cash flow
Routine CIR checks will allow for better financial control, so you can always maintain a suitable credit score, which will help you obtain future credit at a competitive business loan interest rates.
To sum up
Business credit lines rely heavily on credit history. Therefore, immediate steps to nullify major red alerts in your CIR can keep the credit score favourable.