A business loan is important for a seamless flow of capital. 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, etc. However, your chances of getting these business loans will be reduced if your credit score decreases. 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 between 700 and 900, and a bad credit score is between 300 and 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 considered 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.
Bank Loans:
Banks may hesitate to give you a loan initially, but they can provide 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 only under certain conditions.
Credit Card for the Business: You can use a credit card to get funds when your credit score is low. The credit card’s interest rate will increase, but you can get the necessary funds. Getting a credit card is much easier than obtaining a loan from a bank. You must 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:
NBFCs or non-banking finance companies may also lend you the loan you seek. They may charge a higher interest rate but will give you loans much 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: Money lenders give microloans to small businesses and startups. The lenders are not for profit, and their interest rates are comparatively lower. The repayment period is seven years.
Secured Loan:
In this type of loan, you need to keep collateral with the bank or any other financial institution to get the loan. The only way to get a 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:
Getting a loan witha 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 from traditional banks with a high interest rate. Check out Finserv MARKETS.
