How to get business loan with low CIBIL score? Every business entity in form of a proprietorship firm or a partnership firm or a private limited company needs uninterrupted financial support for growth and expansion of its business.

This need of enough cash to carry out the plans effectively, whether that means purchasing new machinery, stock, boosting working capital, debt consolidation, incurring day to day operational expenses or any number of other things can only be met by availing business loan without security or against collateral security so that the business must have sufficient liquidity to maintain the ongoing activities.

So, to avail business loan to cover these business needs there are certain factors upon which the approval and disbursement of the business loan depend like including business income, assets, profits, liabilities, and collateral value.

However, this is still insufficient. Lenders look into the credit history as well before approving a business loan. Long and solid credit history is crucial to the granting of a business loan. To demonstrate the creditworthiness, the applicant must have a high credit score. The banks and NBFCs in India have recently undergone a rapid transformation toward greater accessibility as they cannot provide business loan with low CIBIL score.

So automatically the question arises that how to get business loan with low CIBIL score and what is the process on should follow to improve it?

What is CIBIL score?

Credit Information Bureau (India) Limited (CIBIL) also known as TransUnion CIBIL is a credit information company that collates and manages financial data provided by financial institutions and generates credit or CIBIL score of individuals and businesses that signifies their creditworthiness and repayment capability.

Apart from this, there are three more credit bureaus that are licensed by the RBI and are named Equifax, Experian, and CRIF Highmark. However, in India, TransUnion CIBIL is regarded as the most popular credit bureau. 

There is a huge role played by CIBIL score for a business loan. The CIBIL score is a 3-digit number representing the credit history of an individual. This score is calculated based on the credit history of the individual along with his or her past debts ranging between 300 and 900.

The majority of the lending organizations require the borrowers to have a good CIBIL score to avail certain loans. They use the CIBIL score of an individual for checking his or her creditworthiness.

How much CIBIL score is considered good by the Banks and NBFCS?

The credit history of an individual or a proprietorship business is summarized in a 3-digit numeric which is known as the credit score of an individual or enterprise. The number depicts the report, rating, and credit history of a business or an individual under Transunion CIBIL. The range of credit score is from 300 to 900.

The higher the score, the better is the credit history and ranking. It is said that a rating of more than 750 is considered good by financial institutions like banks and NBFCs in India for business loan. But there are some financial institutions which provides business loan with low CIBIL score compare to the mentioned level.

What is the Reason of not getting Business Loan with low CIBIL Score?

Due to several causes, including the advent of online loan platforms and the growth of non-banking financial enterprises in the market, lending procedures have gradually loosened.

These factors mean that business loan with low CIBIL scores is no longer unworkable. However, it is essential first to understand what having a poor CIBIL score entails before diving into how one might obtain business loan with low CIBIL score.

What are the ways to get a Business Loan with bad CIBIL Score?

If a business person needs a business loan with low CIBIL score on an urgent basis and the low CIBIL score is acting as a barrier in the same, then one can try the following methods in such a case:

1. Small Finance Banks (SFBS) or Micro Finance Institutions (MFIS) for Business Loan

Communicating with the Small Finance Banks (SFBs) or Micro Finance Institutions (MFIs) for business loan with security as sufficient collateral security and sound business profile in many occasions helps to avail business loan with low Cibil score.

Generally, these financial institutions mainly keep a check on the financial stability and repayment capability of an applicant, along with financials and loan defaults, if any.

If they find all appropriate then sanctioning of a business loan with collateral security are provided. However, the interest rate charged could be higher side as compared to private or public sector banks and top tier NBFCs.

2. Approach Non-Banking Financial Companies (NBFCS)

NBFCs are the second-best option for a business entity to avail a business loan with low Cibil score. These are financial institutes that do not have banking licenses, but can provide loans with or without security at reasonably higher interest rates.

Usually, NBFCs are not that stringent enough with the credit score of a borrower or enterprise while providing business loan.

3. Get Overdraft Facility from the Bank

Overdraft is a form of business loan in which a total credit limit is sanctioned by the lender bank based on the sound financial eligibility and eminent business profile of the borrower. The interest rate is calculated only on the utilized amount from the total sanctioned limit.

If a borrower has a good relationship with the bank and manages a current or savings account with the same bank, then he or she can avail overdraft and can use it for business-related purposes against the turnover as per GST returns and some fixed deposits if required. Banks generally do not check CIBIL scores before sanctioning a credit limit.

4. Apply for Secured Loan with Leading Banks

Secured loan is a type of business loan in which the borrower has to submit collateral or security with the bank or lender in the form of property, equipment/machinery, gold, raw materials, stock, inventory, etc. By submitting collateral security, the risk of the bank reduces and makes it easy to sanction a loan, even if the borrower has a low CIBIL score.

5. Get Help with Peer-to-Peer Lending

Getting a business loan with low CIBIL score will not be that much difficult if one can try getting a loan from peer-to-peer lending (P2P). The amount of loans offered by such entities is quite small and there is no need for any kind of collateral or security from the borrowers. However, the rate of interest charged for these loans is quite high.

How can the Low CIBIL Score be Enhanced and Improved for Required Creditworthiness?

Improving the creditworthiness can increase the chances of obtaining a business loan with low CIBIL score. Here are some of the ways that has been discussed by following which one can improve the credit score as per the requirement of the lender bank or NBFC:

• Timely Payments: Making of all the payments on time without delay paying off debts.
• Avoid Multiple Lenders: Avoidance of multiple applications for a loan from multiple lenders, as this can negatively impact the CIBIL score.
• Proper Term: Choosing a proper credit term to manage the payments which lower the chances of defaulting the loan repayment.
• Good Balance of Secured and Unsecured Loans: Maintain a healthy balance of secured and unsecured loans to demonstrate your creditworthiness.

Depending upon factors, the bank or NBFC might agree to offer a business loan with CIBIL score. However, if the CIBIL score is less than 650, it will be extremely difficult to get a business loan with low CIBIL score for any business person.

Many lenders in form of fintech companies offer the option to the borrowers to apply for a business loan with low CIBIL score online, making it easier and more convenient for the business person to access financial assistance.

Online application processes are typically faster, require less documentation, and offer more transparency throughout the loan approval process. However, one should still be cautious when applying for a business loan with low CIBIL score online and only use reputable lenders with secure online system.

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