How to improve Business Loan Credit Score?

When any NBFC want to lend you money, they would like to assure themselves that your business is capable of repaying the loan for business along with the interest charged on the business loan. 

As a borrower, you would have kept yourself ready with all the necessary credentials to showcase your creditworthiness but, wouldn’t it be better if a neutral party verifies your credentials? That is exactly what a business credit score does. 

Wherever you take a loan for business you need to submit information about the loan and its use to credit bureaus authorized by RBI. These credit bureaus compile the information received from various businesses and derive a score known as the company credit report (CCR) for each business entity. The credit bureaus provide the CCR of businesses to any lender who wants to verify the credentials of a business entity when it applies for a business loan

The CCR is a structured recording of the credit history of a business. Typically, it comprises

  • Details such as the amount of loan, interest rate, tenure of all loans taken by the business 
  • Repayment history of all loans
  • Defaults, if any
  • History of any guarantees given for other businesses or individuals
  • Statutory information pertaining to – official name, ownership, registrations, PANs, address and contact details    

Based on the information furnished by various lenders the credit bureaus prepare the CCR. They update the CCR as and when fresh information on the business comes in. Therefore, at any point, the CCR is supposed to reflect the latest financial health of a business in reference to the loan for business taken by that business.

Now, when you apply for business loans , you submit all the documents in support which include a variety of information ranging from name, owners, address, registrations (GST, PAN, permissions, etc.,), financial reports, ITRs, bank statements, P&L statements, balance sheets, financial ratios and loan history. The lender then seeks the CCR of your business from the credit bureau and compares with the information you have submitted. 

Thus, the CCR becomes important for both borrower and the lender. From borrower point of view, it is beneficial if you have a squeaky clean CCR. You must beware that even though you are prompt in your repayments sometimes due to information delays the CCR may not reflect the correct CCR. Therefore, you have to ensure that your CCR is of the highest order based on the processes and scale adopted by a particular credit bureau.

In order to see that you have an impeccable CCR, you can follow the guidelines detailed below.

Take loans only when needed

Don’t take a loan at the drop of a hat just because it is easily available, and you satisfy the business loan eligibility conditions. Make use of financial management techniques to assess your fund requirements and try as much as possible to use internal resources. If it is absolutely needed only then you should avail a loan. 

Ensure prompt repayments

Remember that you have the commitment to repay the loan. If you are prompt in making payments then the better it reflects on your CCR.  

Restrict the number of business loans

Avoid taking frequent business loans. A better strategy would be to plan your finances well in advance and take a larger loan that covers various aspects of your business.    

Avoid unsecured loans

Unsecured loans have an adverse impact on your CCR. Avoid them as much as possible. 

Monitor CCR 

Check your CCR every time the credit bureau updates it and make sure it reflects the correct picture. If there are any discrepancies get them immediately rectified otherwise it would harm your CCR. Remember, minor defaults earlier can be overcome by prompt payments in the future. This is because the credit bureau updates the CCR periodically (6-12 months).

CCRs of stakeholders is important

If your business depends on suppliers and institutional customers make sure their CCRs are monitored. It is important that they too have a good CCR as otherwise, it may harm your ability to secure a business loan.

Besides the above try to manage your business competently. This includes impeccable financial management which can help you to manage funds from available internal resources. Of course, there could be other benefits accruing to you because of cheaper loans or interest subsidies on business loans. Therefore, be prudent with your business loans and take them only when necessary and only when they are beneficial and you can repay them without too much of a hassle. 

There is always Tata Capital that can offer you a timely business loan. You can check your business loan eligibility here. Once you satisfy the business loan eligibility conditions you can apply here.