Have A Bad Credit Score But Still Want A Business Loan? Read This Blog!

Posted on 22 November, 2022 by Finway FSC

Starting and growing a business requires a great deal of zeal and commitment. If you are eager to start your business loan, you must create a solid business plan. Before starting your firm, you should educate yourself on current industry trends. The world of business can be both fascinating and intimidating. No two days are alike at work, and you face new challenges daily while also learning from your highs and lows. As a result, being well-prepared allows you to deal more effectively with any situation. You can get a loan against land mortgage if you need money.

Why is credit score important?

Lenders use your credit score to assess your loan repayment ability and creditworthiness. Your credit score is a three-digit number determined by factors such as credit history, repayment history, and credit profile. A credit score of 750 or higher is considered excellent for low-interest business loans. However, any credit score between 300 and 600 is considered poor. While some banks or lending institutions may allow you to apply for a business loan despite your poor credit, you may be offered a higher interest rate.

When Does a Credit Score Go Bad?

A credit score is a three-digit number calculated by independent private agencies based on various parameters, capturing a person's historical behaviour as a lender. This ranges from 300 to 900, with a higher number representing a better score and vice versa.

Different lenders have different risk perceptions and use other criteria, but a score above 750 is considered suitable as a general rule.

Options If You Have A Low Score

If a business owner's credit score is less than 750, they can still get a business loan approved.

• Consider a Secured Loan:

The simplest solution is to choose a collateral-backed small business loan, where the value of the asset pledged is more important than the credit score in making a decision.

• Look around:

Commercial banks generally have a higher credit score threshold or minimum requirement to approve a borrower. This means that a business owner with a bad credit score can try knocking on the doors of other lenders who are more flexible. Small finance banks and non-banking finance companies (NBFCs) are among these financial institutions.

• Invite Co-Borrowers:

When applying for a home loan or a loan against land mortgage, it is often recommended that you bring a co-applicant. This aids in both tax planning (if both are salaried) and increases loan eligibility. Similarly, a co-borrower for a business loan can be one's spouse. If the co-borrower has a good credit score, it can help with the loan approval.

• Consider an overdraft:

This straightforward workaround comes in the form of an auto-approved business loan. Overdrafts are provided by banks with which a business already has a current account.

• Retrieve the score:

This is only a feasible option for those requiring a business loan after a period of time. However, this can be done to ensure that bad credit is not a barrier to obtaining a business loan in the future.

Conclusion

When applying for small business loans, the history of the business owner's personal affairs and whether they have repaid their debt-related dues on time are important factors to consider. A credit score of at least 750 makes it easier to obtain a business loan, but there are some exceptions.

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