Articles

3 Things Your Credit Score Tells to Your Business Loan Lender

by Mymoney Mantra FinTech (Financial Technology)

If you already own a business or are planning to kick-start one shortly, you must be aware of a loan known as the Business Loan. But do you know what it is, and what does it entail? Let us tell you a bit about it.

 

For a business to grow and sustain, it is imperative that it enjoys a consistent inflow of funds. While these funds help meet the day-to-day requirements of the company, there are times when investments in the expansion of business or purchase of new assets need to be made.

 

Funds for such investments can usually be borrowed from a lending institution such as a bank or an online lender, in the form of a Business Loan. This is an unsecured loan which can be taken by a self-employed professional or a business owner.  The average amount of this loan varies from a minimum of Rs. 3 Lakhs to a maximum of Rs. 1 Crore, while the tenure of repayment may range from 24 months to 60 months, depending on the terms and conditions of the loan.

 

There are mainly three Types of Business Loans:

  • Term Loans: Meant for business expansion, capital infusion or acquisition of long-term fixed assets including land or building, machinery.
  • Special Business Loan for Women Entrepreneurs: Low-interest loans meant for female entrepreneurs with more than 50% ownership in the business.
  • Working Capital Loans: Meant to meet the operating expenses of a business.

 

Now that you know where to get a Business Loan, and the nuances of procuring one, let us remind you of an aspect that will play a vital role in determining whether your loan application gets approved. Even if it does pass through, this aspect will dictate the rate of interest levied on the loan. And this is - the credit score. 

 

So, what exactly does a lender look forward to in your credit score? Well, that’s precisely what we are about to discuss?

 

  1. Your Ability to Repay the Loan

If a lender is to offer you a hefty sum of money, it is only justified for them to inquire about your business, its model and the revenue it generates. After all, it takes a steady cash flow for a business to make regular payments towards the loan, starting immediately.

 

However, even if you do not have sufficient revenues but a good credit history, along with a promising project, you can expect to get the loan approved. The key here is to exhibit both, a credit score that authenticates your willingness to repay, as well as a project that ensures a commendable cash flow.

 

  1. Your Financial Discipline

If you are someone who has defaulted on making Credit Card payments or EMIs (Equated Monthly Instalments) more than once or has gone overboard with your expenses, beyond your credit limit, it will reflect poorly on your credit score. Business loan lenders will promptly take note of this fact and conclude that you show poor discipline. The same holds true if you have too many outstanding debts and are struggling to repay them.

 

In such a case, it should come as a surprise that your either your loan application will be declined, or you will need to pay an exceptionally high-interest rate.

 

  1. Your Response to an Unfavourable Situation

Quite often, different lenders exhibit different levels of tolerance for risk. However, for obvious reasons, no lender would loan a sum of money to a business that is destined to doom. It is for this very reason that your lender will analyse your revenues closely to see whether or not will you be able to service the debt in case your proposed project fails to succeed.

 

Moreover, they may ask for collateral such as real estate, or liquid assets to recoup their losses, in case you fail to repay the amount. It is at this point that the lenders also carefully examine your credit score to gain insight regarding your financial routine. Only when they are completely satisfied, will they approve the loan. 

 

If you believe that any of the aspects mentioned above will weaken your creditability in the eyes of the lender, we recommend you wait before applying for a loan. You can use the waiting period to boost your credit score, using simple measures such as using your Credit Card for a significant purchase and paying the bill upfront or settling off other debts before considering a new one. Even a simple measure such as maintaining reasonable financial discipline for a year or at least six months can work in your favour!

 

Not only will this help your loan application get approved effortlessly, but will also ensure that you reap the benefits of low-interest rates!


Also Read: 5 Traits of a Successful Business Loan Application

 

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989. 

 

Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers. 


About Mymoney Mantra Junior   FinTech (Financial Technology)

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Joined APSense since, September 22nd, 2017, From New Delhi, India.

Created on May 30th 2018 08:04. Viewed 199 times.

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