Header Ads

Steps to Maintain a High CIBIL Score with SME Loans

Small and Medium Enterprises, or SMEs, are famously considered as the backbone of India’s economy. From manufacturing and education to real estate and financial services, every sector is seeing a continuous growth in business opportunities. The implementation of GST has tipped several factors in favour of small- and medium-scaled businesses, such as decreased cost of freight and raw materials and increased transparency.

Financial institutions are more willing to sanction small business loans to SME owners, who usually require monetary assistance to set up their business. When deciding whether to authorise a specific loan request or not, banks and Non-Banking Financial Companies (NBFCs) evaluate the SME’s credit score.

Calculating CIBIL Score

Individual and company records of all credit-related activities are documented by TransUnion CIBIL Limited, a credit information company in India. Per CIBIL guidelines, a score of 750 and above is considered good on a scale of 300 to 900.

While processing an SME loan request, banks and NBFCs strictly adhere to these guidelines. Therefore, a good CIBIL score is essential for obtaining a business loan. In order to build a score high enough to be eligible for an SME loan, you first need to know the various factors affecting it. They are:

  • Credit repayment history
  • Credit utilisation limit
  • Company size
  • Multiple loan applications
  • Industry risk
  • Requests for higher credit limit

Maintaining a High CIBIL Score

Even if you have successfully attained small business financing, you will need to continue managing your credit to attract potential investors and run your business without hindrance. Here are some steps you can follow to maintain a high CIBIL score with a business loan in India:

  1. Repay your loan on time:
Sustaining a steady routine of repayments of your SME loan will reflect in your credit history as financially responsible behaviour. Try not to miss any payment deadlines, because doing so will impact your rating negatively.

  1. Avoid taking multiple loans:
Every new business loan you apply for will bring down your credit score by a certain degree. To prevent your overall rating from taking a significant hit, avoid applying for multiple loans. This does not mean that you cannot take more than one SME loan. But before you do, make sure you have cleared your previous outstanding credit.

  1. Keep an eye on your history:
To secure business finance in the future, you should check your credit performance history at least bi-annually. This will ensure that any reporting errors in your CIBIL credit document that may be dragging down your score are brought to your attention immediately.

  1. Control your credit card usage:
A credit card can be a boon or a curse to your CIBIL score depending on your usage. As long as your outstanding balance is restricted to less than 30% of your credit limit, you are good to go. It is also wise to keep existing cards with a favourable payment history, because they will reflect well on your record.

Availing Small Business Financing

Loans for small business owners are the building blocks that can help you set up your own enterprise and drive economic growth. To apply for an SME loan, click here.
Powered by Blogger.