Startups, businesses, MSMEs, and large enterprises require funds on a regular basis to meet the day-to-day business expenditures and manage business cash flow.
Self-employed professionals, small business owners, Small and Medium Enterprises (SMEs), Startups, and various other profit-making entities need substantial funding to maintain the smooth functioning of their business activities and increase profitability.
Business loans are majorly used for various business expansion purposes, such as buying land/commercial properties, procuring new stock/inventory, buying new/pre-owned machinery or equipment, hiring/training staff, etc.
Business loans are also availed by sole proprietorships, partnership firms, limited liability partnerships, and other business entities operating in India. To avail of any type of business loan, lenders check credit score of the business owners, as they are the primary applicants of the loan applications.
Commercial lenders shall request your business credit scores from the Credit Information Companies (CICs) or credit bureaus before they approve your loan application. Further, lenders also check the business’s financial stability, annual turnover, volume, creditworthiness, and repayment capacity before loan approvals.
Business Loans with Low CIBIL Score
If you have a low CIBIL score and are wondering whether you will be able to get a loan for your business or not then stop worrying. Getting your loan application approval from leading private and public sector banks could be tough with a low CIBIL score.
However, you can approach various Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs), as usually they do not check your CIBIL score before loan sanctioning.
The loan amount shall not be high, although the interest rate will be if you are eligible to avail loan from these institutions.
Business Loan Eligibility Criteria
The basic eligibility criteria required by most financial institutions before a loan sanctioned is are discussed below:
- Age Criteria: Minimum 21 years at the time of loan application and maximum 65 years at the time of loan maturity
- CIBIL Score: Minimum 750 or above, as preferred by most of the lenders
- Business Vintage: Minimum 1 year or above in the same business
- Business Experience: Minimum 1 year within the same location
- Annual Turnover & Profitability: Shall depend on the lender
- Indian Citizen who should not have defaulted on any previous loan(s) with any lender
Govt. Loan Schemes for Business Entities
Startups and businesses with low CIBIL scores can also avail of loans from various Govt. initiated loan schemes as follows:
- MUDRA* Loan under Pradhan Mantri Mudra Yojana (PMMY)
- Loans under the Prime Minister’s Employment Generation Programme (PMEGP)
- Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
- Loan schemes under Stand Up India
- PSB Loans in 59 minutes
- Loans schemes from the Small Industries Development Bank of India (SIDBI)
- National Small Industries Corporation (NSIC) Subsidy
* Micro Units Development & Refinance Agency Ltd.
These govt. led schemes offer a variety of loan products to various business entities and segments across the nation at reasonable and competitive interest rates. The minimum or maximum loan amount shall depend on the nature and type of business, and the applicant’s profile and shall vary from lender to lender.
Types of Business Loans Offered in India
Business loans come in various types that are availed to meet working capital requirements and enhance funds for business for various types of businesses as mentioned below:
- Term Loan (Short & Long Term Loan) (Secured and Unsecured)
- Overdraft (Secured and Unsecured)
- Working Capital Loan
- Letter of Credit
- Bill Discounting/ Invoice Discounting
- Merchant Cash Advance/ Point-of-Sale (POS) Loans
- Equipment Finance/ Fleet Finance/ Machinery Loan
- Bank Guarantee
- Purchase Order Financing, etc.
Minimum CIBIL Score Required for Business Loan
There are no specific (minimum or maximum) CIBIL score criteria, as defined by the lenders in availing business loans. The business loan eligibility or minimum CIBIL score criteria shall vary from bank to bank and shall depend on the applicant’s creditworthiness and repayment capability.
Usually, a CIBIL score of at least 700 or above is considered decent by lenders that help in availing small business loans or startup loans at competitive interest rates. A good CIBIL score assists women entrepreneurs in availing funds at concessional interest rates by selected banks and financial institutions.
Key Takeaways
Before applying for a business loan, entrepreneurs, business owners, self-employed professionals, and other business entities should evaluate their necessities and requirements.
Lenders, including private and public sector banks, NBFCs, Small Finance Banks (SFBs), Cooperative Banks, Regional Rural Banks (RRBs), and other financial institutions rely on the CIBIL score of business owners or company’s CIBIL rank to assess their business loan applications.
CIBIL score is the single most important factor for availing a business loan, so maintain it at 750 or above to avail of hassle-free loans at competitive interest rates. CIBIL score ranges from 300-900, so any score above 750 is generally considered good by lenders across the nation.
Apply for unsecured business loans for a lesser amount to avoid submitting any collateral/security with the lender. Check and compare various lenders offering a range of loan products before applying for a startup or business loan.