A business loan is important for a seamless flow of capital in the business. It could be any business; the need for capital is constant throughout. You need a business loan to buy raw materials, equipment, machinery, pay the staff bills, and so on. But your chances of getting these business loans reduce if your credit score goes down. So it is essential to get a good credit score.
Your business loan eligibility is calculated by checking your credit score. A good credit score is anything between 700 to 900, and a bad credit score is anything between 300 to 500. Your creditworthiness is evaluated by how well you pay your credit card bills on time and whether you pay EMIs and loans on time. These factors are taken into consideration when calculating your credit score or CIBIL score.
But the question is, what about those with poor credit scores? How can they get a business loan with a low credit score? Let’s take a look at it.
Banks may hesitate to give you a loan initially, but they can provide you loans with higher interest rates. They may even give you a loan if you have a fixed deposit in the bank. Banks may help you with business loans but under certain conditions only.
Credit Card for the Business:
To get funds when your credit score is low, you can opt for a credit card. The interest rate will be higher for the credit card, but you can get the fund you need. Getting a credit card is much easier than obtaining a loan from a bank. You have to pay your credit card bills on time, or that will hurt your credit score. But make sure you don’t apply for a credit card multiple times.
NBFCs or non-banking finance companies may also lend you the loan that you are seeking. They may charge a higher interest rate, but they will give you loans a lot easier than traditional bank loans. NBFCs also have fewer formalities and documentation than bank loans. They may even charge less if you have a decent credit score. They charge a high interest rate because they have to take the risk of giving the loan without any security or formalities.
Microloans are given to small businesses and startups by money lenders. The money lenders are not for profit, and their interest rates are comparatively less. The repayment of the loan is 7 years.
You need to keep collateral with the bank or any other financial institution in this type of loan and get the loan. The only way to get the loan is by securing property, machinery, or any other asset and getting money in return. This reduces the risk for the moneylenders.
The Bottom Line:
To get a loan when you have a credit score below 400 is difficult, but it’s not impossible. To get that business loan to continue the growth and flow of the business, you may have to go for NBFCs, microloans, secured loans, and so on. You may even get loans in traditional banks but with a high rate of interest. Check out Finserv MARKETS.