Does A Low Credit Score Affect The Business Loan Application?
A credit score plays a crucial role in determining whether you are eligible for a business loan or not. People with low credit score have minimum chances of getting loan approvals from banks and money lenders. Before applying for business loans one should always know what is the credit score and what is their score. A credit score is a numerical presentation that showcases the creditworthiness of a borrower. Creditworthiness is the capability of a borrower to pay the loan in time. There are several applications available in the website to calculate and check free cibil score. Through these apps, one can calculate whether they are eligible for instant business loans or not. The credit score is divided into different categories. The types are discussed below:
Under 579 score (Bad)
The score below 579 has less or no chances of getting loans, but there are some financial options for getting loans. This type of credit score has a high risk with more or less no or very fewer options and increase the interest rate.
The score between 580-619 (Poor)
Someone with a score range can have some chances of getting loan approval as compared to one with 579, but in this case, too there are few choices and a high rate of interest. This score is considered a high-risk score.
The score between 620-679 (Not so Poor)
This score is considered as the low-risk score with the chances of getting loan approval is less risky. But in this case, borrowers won’t get relief in the interest rates. Some traditional lenders won’t give small bank loans to borrowers under this score. The score itself carries more interest rates but there are chances that people get loan approval.
The score between 680-719 (Good score)
This score is considered as the good credit score range and there are plenty of options for borrowers. This scoring range includes those who are self-employed or salaried employees. The borrowers with this score get loans easily with low interest or reasonable interest that can be paid easily. For lender too, this score is less risky.
The score between 720-799 (quite a good score)
Borrowers with this credit score range are the most low-risk borrowers and for lenders they are trustworthy. This score is depicted that you have paid the previous loans without any bounce and you have a good financial history. The borrowers with this score get loans instantly without any trouble and they have to pay less interest.
The score above 800 (highest score)
The score of 800 or more is more enchanting to lenders. Not all people get this score, but those who possess it have excellent destiny to get business loans in finger time in no time with the least interest. The score itself depicts that the borrower is capable enough to pay back the loan amount without any delay or bounce.
Some important factors that affects the credit scores are discussed below:
- The history of the payment related to personal, business or credit cards.
- Payment history of the debts or other present or past business loans.
- The relationship of the borrowers focused on the credit.
- The overview of the credit that has been used by the borrower.
- The information on the nature, business trends and promoter details of the business.
The lenders use this information to evaluate the credit score. The information on borrowers are available to lenders in the form of credit report, this is then used to summarise the credit score. There are various credit bureaus including CIBIL, Crif High Mark, Experian and Equifax who are involved in this evaluation process. The criteria of evaluation differ from one another.
The impact of credit score on the new application process
- Credit score determines your capability to repay the loans based on your past credit strength.
- It helps in determining the rate of interest you have to pay.
- It helps in understanding your debt obligations.
- Last but not least it determines whether you get approval for the requested loan or not.
Lastly, Credit score plays a vital role in the approval of the loans. Borrowers need to maintain good score to get loans with less interest. The time and effort for loan approval also decrease with high credit score. It is the direct image of your previous financial transactions so it is advised to avoid debts in the past as well as in the future.