With the rising uncertainty in the business environment, the requirement for ready access to finance has become imperative for the survival of a business. If for any reason your payments are delayed from the buyers and you are unable to make payments towards your liabilities, it would be catastrophic for your business. Your years of hard work would count for nothing and once you lose your goodwill. It is really tough to earn it back. There is no reason that such a situation should come up for you. Especially when you have an excellent source of funding readily available to you,i.e. anon-collateral business loan.
What are Non-collateral Business Loans?
Non-collateral business loans are commonly known as unsecured business loans. These loans are unsecured in nature,i.e. there is no need to mortgage security with the lender to secure the business loan amount. The repayment tenor for a business loan without security extends up to 24 months. The maximum amount available is dependant on your requirements and credit profile. Business loans without collateral are meant for business purposes only,but there is no need to inform the lender regarding the end use of the money.
Unsecured business loans are an ideal borrowing option for small business owners who do not have any security to mortgage or require funding only for a short duration. They help business owners strengthen their financial position and maintain the competitive advantage over the competitors.
In order to apply for a non-collateral business loan, you can opt for an online lending platform. These platforms offer you the flexibility of applying from the comfort of your home and get your business loan application approved within 72 hours. The business loan eligibility criterion followed by these platforms is fairly relaxed and can be changed to suit your requirements.
Importance of the CIBIL Score for a Business Loan Application
A business loan can be a crucial financial tool for entrepreneurs looking to expand operations, purchase inventory, or manage cash flow. However, securing one is not always straightforward. Among the many factors lenders consider, the Credit Information Bureau (India) Limited (CIBIL) score plays a pivotal role. A strong CIBIL score improves approval chances, while a poor score can lead to rejections or higher interest rates.
Due to the recent turmoil in the financing sector in the form of bad loans, NPAs, frauds and collusions. All financial institutions have adopted a stringent screening criterion for assessing the business loan applications. One of the most important parameters that is given the highest weight while deciding the fate of a business loan application is the CIBIL score.
What is a CIBIL Score?
Trans Union CIBIL is a credit bureau that calculates your creditworthiness based on a number of parameters. Due to its extreme popularity in India, CIBIL has become synonymous with the credit score. It is a numerical representation of your creditworthiness. In order to calculate your credit score, a number of parameters are evaluated by CIBIL, such as:
- Total Outstanding Loans
- Credit card Utilisation Ratio
- Repayments towards loans
- Loan Applications filed in the recent past
- Any defaults or write-off’s
What is the best Score for a Business Loan?
Ideally, a CIBIL score of over 750 is considered as the best CIBIL score for a business loan by the lenders. This ensures that you are able to get the business loan at the lowest interest rates and most friendly terms. Any CIBIL score of 700 is also considered largely acceptable by the lenders if all other parameters are satisfactory. In case the CIBIL score is below 650, it shows poor credit habits on your part and enhances the risk perception in the eyes of the lender. Who will then most probably reject your business loan application or would charge a higher business loan interest rate.
How is the CIBIL Score Calculated?
Several factors influence a CIBIL score, each assigned a different weight:
1. Payment History (35%) – Timely repayments improve the score, while missed or delayed payments negatively impact it.
2. Credit Utilization (30%) – Using too much of the available credit limit can lower the score. Experts recommend keeping utilization below 30%.
3. Credit Mix (15%) – A balanced combination of secured (home loans, car loans) and unsecured loans (credit cards, personal loans) demonstrates responsible borrowing.
4. Credit Inquiries (10%) – Frequent loan applications can signal financial distress, reducing the score.
5. Credit History Length (10%) – A longer credit history with consistent repayments strengthens the score.
How to Check your CIBIL Score?
1. CIBIL Website – Visit the official CIBIL website and request a credit report by providing personal and financial details.
2. Banking Portals – Many banks offer free credit score checks through their net banking or mobile apps.
3. Third-Party Services – Platforms like Paytm, CRED, and Paisabazaar provide free credit reports.
How to Improve a Low CIBIL Score?
1. Pay Bills on Time – Ensure all EMIs, credit card dues, and loan payments are made before the due date.
2. Reduce Credit Utilization – Avoid maxing out credit cards; keeping balances low helps improve the score.
3. Avoid Multiple Loan Applications – Each hard inquiry impacts the score. Apply only when necessary.
4. Maintain a Healthy Credit Mix – A mix of secured and unsecured loans (if managed well) can be beneficial.
5. Check for Errors – Dispute inaccuracies in the credit report, such as incorrect loan accounts or payment delays.
Common Myths About CIBIL Scores
1. Checking the Score Lowers It – Checking your own CIBIL score is a “soft inquiry” and does not affect the rating.
2. Closing Old Credit Cards Helps – Closing old accounts can shorten credit history, potentially lowering the score.
3. High Income Guarantees a Good Score – Income is not a factor in CIBIL scores; repayment behavior matters more.
4. No Loans Means a Perfect Score – No credit history can make lenders hesitant, as there is no proof of repayment discipline.
How to maintain a good CIBIL Score?
In the present times, when transparency has become the norm for the financing sector, it is important that you maintain a good CIBIL score as it would then open up a plethora of opportunities for your business in the future. Here are some tips to help you maintain a good credit score:
1. Make sure that your credit card utilisation ratio is below 40% under all circumstances. If your credit card utilisation ratio is above this level, it will impact your credit score negatively.
2. Make sure that you repay all your EMIs on time. Any cheque bounce or EMI return will impact your credit score negatively.
3. Do not file multiple loan or credit card applications simultaneously, as this would portray you as credit hungry. Instead, do your research and select those lenders, whose business loan eligibility criterion matches your profile.
4. Make sure that you repay all your loans in full, if you default on any loan or pay via settlement, it would have a significantly negative impact on your credit score.
5. Check your credit report for any discrepancies. Sometimes it may happen that any erroneous write-off has been written against your name even if it does not belong to you. Raise a dispute with CIBIL in this regards,and if your claim is found to be correct, that entry will be removed from your credit report.
It is important for you to observe strict financial discipline as it would bear great fruits for you in the long run.
How CIBIL Score affects Business Loan Approval?
1. Loan Eligibility Lenders first verify an applicant’s CIBIL score before processing a business loan. A score below 650 may lead to outright rejection, while a score above 750 enhances approval odds. Some lenders may still approve loans for lower scores but impose stricter terms.
2. Interest Rates Offered A strong credit profile allows borrowers to negotiate better interest rates. Lenders view them as low-risk, offering competitive rates. On the other hand, applicants with poor scores may face higher interest charges to offset the lender’s risk.
3. Loan Amount and Tenure A high CIBIL score can qualify a business for a larger loan amount and flexible repayment tenures. Lenders are more confident in borrowers with a solid repayment history, allowing them to access greater financial support.
4. Faster Loan Processing Applicants with excellent credit records experience quicker loan approvals since lenders require minimal additional verification. A low score, however, may lead to extended processing times due to additional scrutiny.
Factors Influencing CIBIL Score for Business Loans
1. Repayment History (35% Weightage) Timely repayment of existing loans and credit card bills positively impacts the score. Missed or delayed payments, defaults, or settlements can significantly lower it.
2. Credit Utilization Ratio (30% Weightage) High credit utilization—using a large portion of the available credit limit—can negatively affect the score. Experts recommend keeping utilization below 30% of the total limit.
3. Credit Mix (15% Weightage) A balanced mix of secured (e.g., business loans) and unsecured loans (e.g., credit cards) demonstrates responsible credit management, improving the score.
4. Credit Inquiries (10% Weightage) Multiple loan applications within a short period can reduce the score, as lenders interpret it as credit-hungry behavior.
5. Length of Credit History (10% Weightage) A longer credit history with consistent repayments strengthens credibility. New borrowers may find it challenging to build a high score initially.
Alternatives if CIBIL Score is Low
1. Apply with a Co-Applicant A guarantor with a strong credit profile can improve approval chances.
2. Opt for Collateral-Based Loans Secured loans, backed by assets, reduce lender risk, making approvals easier despite a low score.
3. Approach NBFCs or FinTech Lenders Some alternative lenders offer loans to borrowers with lower credit scores, albeit at higher interest rates.
4. Build Credit Gradually Taking small loans and repaying them on time can help rebuild credit health over time.
Conclusion
It not only enhances approval chances but also ensures lower interest rates, higher loan amounts, and faster processing. Regularly monitoring credit health, repaying dues on time, and managing credit wisely are key steps to maintaining an optimal score. For businesses, maintaining a high credit rating is not just about loan approvals—it’s about building long-term financial credibility and stability.
