5 Steps to Build Business Credit

One of the major reasons for a Business Loan getting rejected is poor personal or business credit. Borrowers with bad credit get less favourable payment terms with lenders like higher interest rates and insurance premiums.

You could avoid loan rejections by abiding to the following guidelines.

1. Keep a Check on Your CIBIL Score

To avail credit from banks and non-banking financial companies (NBFCs), you must have a decent credit score. Your credit history determines your CIBIL score. CIBIL maintains a record of when and how you pay your dues against loans and credit cards. A credit score is good if its upwards of 750. Credit institutions will view your loan application favourably in this case. A good credit score shows that you pay off your debts in a disciplined manner and will keep your debt-to-credit ratio low.

2. Subscribe to Small Credit

Any new business takes about two years to become stable. Seeking business credit during these early days can be an uphill task. Do not expect banks to lend large sums of money to you at this time. Credit institutions will remain sceptical about the success of your young business. To improve your credit score, you could start by applying for loans for small businesses from banks and NBFCs. Your next step is to repay these debts on time. This will help you build goodwill with the lenders, thus making them comfortable for larger lending.

3. Increase Credit Limit When Possible and Not Just When Required

Apply for an increase in the credit limit with the lender that gave you the small credit. This way, you will be building your profile. Incorporate the references of the partners you have worked with. All this will add up. In time, you will enhance your goodwill with the lender. This may prove helpful later when you actually need the credit line. Then, you will not face any difficulty procuring it.

4. New-age Lenders

Recently, many financiers have become start-up friendly. Ensure that you explore these options for business credit. Apart from these dedicated start-up financing options, you can also approach peer-to-peer lenders. You need not sell your business idea to such a lender. You can submit collateral to them for taking the Business Loan at low interest rate. This approach can be useful when you find it hard to get a conventional financier on board.

5. Multiple Lenders

It could be beneficial to go for tie-ups with more than one lender. You never know when policy changes will start affecting your business relations with a lender. If you forge a relationship with at least two lenders, then you get access to a wide array of products. Competing lenders will ensure that you get the best loan offers.

To Sum It Up