Here’s how to improve Business Loan Credit Score

Applying for a business loan is not something that a business person would want for their business. They know that it is an additional outflow to the company.

However, not all businesses have good customers who pay their bills on time, right. So what do you, as a business person, would do if you need money to run your business? This is when a business loan comes handy.

A business loan can help businesses during a cash crunch. Though they may be averse in taking a loan, businessmen know that it is something that can help them when the time is right.

Business loan eligibility is similar to another kind of unsecured loans. However, one important aspect while availing a business loan is the business credit score.

What is Business Loan Credit Score?

When you apply for a loan for your business, a financial lender like Tata Capital will ask you for a whole lot of information to support your application which includes among other things financial information to ascertain the soundness of your business. In particular, lenders seek information on your past and current business loans and your repayment history of these loans.

It is difficult for lenders to verify the information furnished by you and therefore, they seek an independent authority to corroborate the credit history. The independent authority is the credit bureau. The credit bureau receives information from all accredited lenders about the loans they have extended to various businesses. From an analysis of this information, the credit bureau prepares a company credit report (CCR) or business loan credit score.

The CCR provides a report of the various business loans availed by the business and the information includes

• History of various business loans – loan amount, interest rate, tenure, a record of repayment and default on each loan
• History of guarantees extended by the business to business loans of other people
• Profile of your business – name, ownership structure, statutory permission and registrations, PAN, contact details

Based on the information collected on the above parameters, individual credit bureaus issue CCR with its own unique way of explaining the report.

Importance of CCR

When you apply for a business loan, lenders seek the CCR for your business from a credit bureau. Armed with the CCR, they can evaluate the information furnished by you and convince themselves of your creditworthiness. If your credit history is exemplary, you can bargain for good terms for your business loan such as lower interest rate, higher loan amount and waiver of charges. If your credit score is low, then you will not get good terms for your business loan. Thus, it is important that your CCR is exemplary.

Steps you can take to improve CCR

As you would learn from the above, you have to watch out for the information that the lenders feed the credit bureaus. On one level, you don’t have to bother with CCR if you service the business loan promptly without any defaults. However, it is in your interest to seek a CCR so that it reflects your current situation accurately.

Verify your CCR periodically

Sometimes, information flow to the credit bureau from the lenders is error-prone and it may lead to faulty CCR. Therefore, you must constantly check your CCR and ensure there are no errors in reporting. If there are errors, you should rectify them pronto.

Keep some reserve on your credit limit

You could have obtained sanction for the highest credit limit, but it makes sense to use some portion of it and keep some always in reserve. It can make your CCR look good.

Avoid defaulting on unsecured loans

Defaulting on unsecured loans affect CCR. Therefore, avoid taking too many of them. When you avail unsecured loans, ensure it is for the very short term and your repayment amount is something you can manage, monthly without the fear of default.

Take Loan only when necessary

It is quite tempting to take a business loan just because it is there for the taking. If your business is running well and you are managing efficiently, then the turnover is sufficient to manage and you can invest for growth through internal resources. Remember that you may need a bigger business loan in the future and it is better to make absolutely sure that a business loan is the only alternative left. Remember also that frequent business loans affect your CCR.

Be exemplary in repaying loans

Making payments promptly on each loan is the best way to keep your CCR squeaky clean. In the event you have some past unresolved issues, make it a point to resolve them as quickly as possible. Remember that the credit bureau updates CCR periodically.

Consolidate multiple loans into one loan

It makes sense to consolidate multiple loans into one business loan. You can use the business loan EMI calculator to check out the EMI to be paid when you consolidate.

Do due diligence of your vendors, suppliers and large customers

Make sure you deal with vendors, suppliers and large customers who can show a good CCR. Seeking their CCRs can help you to assess their suitability to do business with you. If not, their delayed payments or supplies can harm your CCR.

These are some of the ways in which you can improve your business credit score. As mentioned earlier, if you handle your business professionally you can rest assured you will have a high credit score. With a high credit score, you can bargain good terms when a business loan becomes necessary. Further, use the features provided by the lender such as business loan EMI calculator to evaluate the business loan you need before you apply for one.