How Can Your CIBIL Score Improve Your SME Loan Approval Chances?

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Remember how critical first impressions are? Now think of your CIBIL score as a first impression your lender gets about your creditworthiness. 

Why does your CIBIL score matter?

The primary reason why your CIBIL score matters is that it boosts your chances of getting a business loan or any other kind of finance. In a nutshell, the higher your CIBIL score, the better your chances of getting a loan, that too, at affordable interest rates.

So, if you run an SME, and wish to expand operations through business finance, make sure your CIBIL score is healthy. After all, it is one of the first pieces of information lending institutions will access before deciding to advance a loan to your company. 

How is the CIBIL score calculated?

The CIBIL score is calculated on a scale ranging from 300 to 900 points. The closer you are to 900, the better. Any score above 750 significantly improves your chances for loan approval at competitive business loan interest rates

However, a score below 750 does not mean your company won’t get a loan. The chances for approval will still be high; only the rate of interest might end up being slightly higher as well.

Factors that affect your CIBIL score

Here are some of the factors that affect your company’s CIBIL score:

  • If you don’t pay your company credit card dues and EMIs for ongoing loans on time, your credit score can fall several points.
  • If you are about to take a loan, make sure to monitor your credit utilisation ratio. Going above your company credit card limits or overdrawing your business accounts routinely might give your lender the impression that your business is not doing well. Try to stay within your credit limits to maintain a healthy CIBIL score.

Make sure your personal credit is free from delinquent payments and defaults

Even though business and personal credit are two separate things, make sure to keep both of them clean. A poor personal credit record hampers your personal CIBIL score – another parameter your lender might check before approving your SME loan, especially if the loan amount is substantial. 

So, make sure you pay those credit card bills on time and not default on any loan EMI payments. 

How can you improve your CIBIL score?

Earning a healthy score might take a few months, but it is not a difficult feat to achieve. Begin by monitoring all your credit lines and repaying bills and EMIs on time. If you end up defaulting on one or two credit card bills or EMI payments, your score won’t go down by much. But, if such a pattern is recurrent, your score will draw closer to 300 and lower your business loan eligibility. 

Parting thoughts

Earned a healthy CIBIL score? All set to apply for business loan? Before you do so, calculate your potential EMIs with an online business loan EMI calculator. Doing this will help you evaluate your loan affordability against the tenure you are comfortable availing.

Lastly, compare lenders on parameters such as interest rates and business loan eligibility criteria, and only then pick one to apply with.  

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