How to Get a Business Loan with a Low CIBIL Score?

CIBIL score is a three-digit number which ranges between 300 to 900. The higher the score, the better it is considered, and the lower the score, the worse it is considered. A customer’s loan repayment behavior is mainly used by credit bureaus to generate this score, which is called the CIBIL score. Apart from TransUnion CIBIL, there are three more credit bureaus in India such as Equifax, Experian, and CRIF High Mark. Here also, there is a scale from 300 to 900 within which a customer is given a CIBIL score.

How much CIBIL score is required to get a business loan?

What score is required to get a business loan? See, if the score is 750+, any premier bank easily provides a business loan to a businessman. It is not that loans are not given below 750. Even with a 700+ score, business loans are provided, but the rate of interest may be higher. Loans can be available even at lower scores, but in that case, businessmen have to approach non-banking finance companies, where the interest rates are even higher and the processing fees are also high.

What is the reason for not getting a business loan with a poor CIBIL score?

With a poor CIBIL score, premier banks do not want to give loans. A poor CIBIL score happens when a customer does not make timely payments after taking a loan or defaults on it. Because of this, premier banks do not want to give loans to such customers, as they believe that the customer may again fail to make timely payments. Also, every premier or popular bank maintains a portfolio of good customers where the interest rates are lower. If they include such customers, the loan default rate may increase, they may face losses, and their portfolio can get affected. That is why banks do not prefer to give loans to customers with a poor CIBIL score.

What are the ways to get a business loan with a low CIBIL score?

Still, as I mentioned here, I will tell you some ways through which businessmen can get a business loan even with a low CIBIL score, or they can get some other type of loan and use that money to grow their business. Due to a low CIBIL score, they may not get a loan from banks, but it is possible that if they apply in non-banking finance companies, their loan can get approved. There are many non-banking finance companies in India that provide business loans even with a low CIBIL score.

One thing to keep in mind is that compared to banks, the interest rate is higher. The processing fee is also slightly high. You can also approach small finance banks or microfinance companies for a business loan because sometimes they do not check the CIBIL score, or even if they check it, they may ignore it. If your financial stability is good, you can get a business loan. However, here also loans are given at higher interest rates and the processing fees are quite high.

One more thing to remember is that in small finance banks, you will get a smaller loan amount. If your business is large and you need a big business loan. Then in that case small finance banks may not be suitable and your purpose may not be fulfilled.

Overdraft Facility from the Bank

Fixed Deposit

We have seen many customers who repeatedly apply for loans in banks. Their loans get rejected due to a low CIBIL score. Later, it is found that they already have a fixed deposit of ₹10 lakh. From that, they can easily take an overdraft facility. Banks can give up to 90% of the amount as a loan. Here also, the CIBIL score is not checked, and the interest rate is quite low.

For example, if the FD interest rate is 6.5%, the bank may charge 1% to 1.5% extra for the overdraft facility. So, you can get the loan at around 8% and use it for your business. Once your purpose is fulfilled, you can return the money to the bank. You only need to pay interest for the number of days you use the money. So, this is a very good option for those who have a low CIBIL score.

Current Account Transaction

If you have a current account and there are strong transactions happening in that account, you can approach that bank. If your current account transactions are good, you may get an overdraft facility. Yes, this overdraft facility is for a short period, but still, it can fulfill your short-term business needs.

Apply for Secured Loan (Mortgage Loan)

Apply for a secured loan. For customers with a low CIBIL score, this is one of the best options. If you take a loan by mortgaging an asset, it becomes easier to get approval and the interest rate is also lower compared to unsecured loans. For example, if you have a house or a flat with a valuation of ₹1 crore, you can get around 50% to 60% of that amount as a loan. You also get a longer repayment period. If you invest this money in your business, it can be very beneficial because the overall cost of the loan is much lower.

Gold Loan

If you or your family members have gold, you can mortgage it and quickly get a loan. In most cases, the CIBIL score is not checked, making it a very good option for emergency funds.

Loan against securities

You can also take a loan by keeping fixed deposits, insurance policies, or mutual fund documents as security. However, keep in mind that term insurance cannot be mortgaged—only savings or investment plans are eligible.

Peer-to-Peer (P2P) Lending

This is a modern option for those with a low CIBIL score. In P2P lending, investors lend money to borrowers through a platform. The company itself does not lend money directly. Even with a low CIBIL score, you can get a loan here. However, the interest rates are very high, ranging from 25% to 30%, and the processing fees can be between 2% to 6%. This option is not ideal for business, but in case of survival or emergency, it can be considered.

Take a guarantor

If your CIBIL score is low, you can take a guarantor. If your spouse or parents have a good CIBIL score, you can apply as a joint applicant. In such cases, the bank may consider your business loan application and approve it.

Improve your CIBIL score

This is the best option. Every businessman wants to keep costs low and profits high. But if your CIBIL score is poor. You take a loan at a high interest rate, it may lead to losses. So, you should first work on improving your CIBIL score. Sometimes, errors in the CIBIL report cause a low score. In some cases, customers have settled credit cards or have loan write-offs, which also affect the score. You can rectify these issues. After improving your score, you can apply for a loan and get it approved at a lower interest rate.