Business Loan with low CIBIL
Business Loan with low CIBIL

Why your credit score matters a lot for getting a business loan?

Credit scores play a crucial role while getting business loans. In India, there are four main credit bureaus: CIBIL, CRIF High Mark, Experian, and Equifax. These bureaus use slightly different scoring methods, which can lead to variations in scores. However, each rating is a numerical representation of your creditworthiness, indicating how likely you are to repay borrowed money. Lending institutions, including banks and NBFCs, use this score to evaluate your credit risk. Let’s explore why having a good credit score is important for businesses looking for loans.

Types of Credit Score

Credit scores fall into two categories: Consumer Credit Scores and Commercial Credit Scores, each used for different types of loans.

Consumer Credit Scores
It is a three-digit score ranging from 300-900 where 300 is the lowest and 900 is the highest with 700 as a safe cut-off being considered. The consumer credit score is a metric to measure the character & credit-repaying capacity of the individual. It is generally used to assess risk associated with asset-backed loans such as home loans, Vehicle Loans, etc. Consumer scores also provide a personal loan score which is more relevant in the case of unsecured loans such as credit cards, personal loans, advance salary loans, etc.

Commercial Credt Scores
Commercial Credit scores vary as per different bureaus. The most common rankings from CIBIL have the range from CMR-1 to CMR-10, where CMR-1 is the safest & CMR-10 is the riskiest rating. Commercial credit scores are considered specifically for business loans in India. These include over-draft (OD) facilities, cash credit (CC) facilities, lines of credit, and secured and unsecured business loans. It’s important for business owners to make timely repayments and avoid exceeding credit limits on CC-OD facilities, as these actions can have a significant negative impact on their credit rating.

Components of Credit Score

Factors contributing to your CIBIL score

Payment History: Your track record of timely payments on credit cards and loans.

Credit Utilization: The proportion of your available credit that you are currently using.

Length of Credit History: The duration of your credit accounts and the time since your last activity.

Types of  Credit: The variety of credit accounts you possess (e.g., credit cards, mortgages).

New Credit Accounts and Recent Inquiries: The number of recently opened accounts and credit inquiries.

Importance of Credit Scores for Business Loans

Your credit score plays a crucial role in numerous financial transactions, particularly when applying for a business loan. Let’s explore how it influences your chances of obtaining financing.

Determining Creditworthiness: Lenders use your CIBIL score to assess your creditworthiness. A high score indicates responsible financial behaviour and makes lenders more confident in your ability to repay loans.

Risk Assessment: The CIBIL score assists lenders in evaluating the risk associated with granting you a business loan. A lower score might result in higher interest rates or even loan rejection due to perceived higher risk.

Tailored Loan Terms: A good CIBIL score can lead to better loan terms, such as lower interest rates, higher loan amounts, and longer repayment periods. This is because a higher score signifies a lower credit risk for the lender.

Quick Access: Working capital loans typically have lower risk, so many lenders offer streamlined application processes. It ensures that businesses get relatively faster disbursals against other business loan products.

Minimum credit score for Business Loans

While the exact minimum credit score required can vary between lenders, a score of 700 and above is generally considered good for business loans. However, some lenders might accept slightly lower scores depending on other factors.

Factors Influencing Minimum Score: The minimum score needed can depend on the type of business loan, the lender’s policies, the loan amount, and the overall financial health of your business.

Ways to Improve Credit Score for a Business Loan

Timely Payments: Paying your bills and EMIs on time is important for improving your credit score. Timely payments demonstrate financial discipline and enhance your creditworthiness.

Credit Utilization: Manage your credit utilization effectively. Avoid maxing out your credit limits and try to keep your credit utilization ratio below 30% to positively impact your credit score.

Regular Monitoring: Regularly monitor your credit report for any discrepancies or errors that could be adversely affecting your score. Dispute and rectify inaccuracies promptly to maintain an accurate credit profile.

How to Get a Business Loan with a Low Credit Score

Seeking Alternatives Lenders: If your CIBIL score is below the required threshold, or if you face challenges securing a business loan from traditional banks due to your credit history, you can explore alternative lenders like Red Fort Capital. It is a reputable Non-Banking Financial Company (NBFC) that specializes in providing quick and accessible business loans. They understand that a low credit score doesn’t define your entire financial story, and they tailor their loan products to accommodate various financial profiles.

Red Fort Capital’s small business loans Philosophy: Red Fort Capital offers quick business loans with a streamlined application process. They focus on the potential of your business and its ability to generate revenue rather than solely relying on credit scores. Here’s how they stand out:

Faster Approval: Red Fort Capital expedites the loan approval process, ensuring you get the funds you need promptly.

Flexible Eligibility Criteria: They have more flexible eligibility requirements, making it possible for businesses with lower CIBIL scores to qualify.

Customized Loan Solutions: They design loan solutions to meet the specific needs and financial situation of your business, providing a tailored approach to funding.

Support for SMEs: Red Fort Capital supports startups and small to medium-sized enterprises (SMEs) in their growth journey by providing accessible funding solutions.

By considering lenders like Red Fort Capital, you increase your chances of securing a business loan even if you have a less-than-perfect credit score. Their focus is on empowering businesses and enabling their growth by providing financial assistance when it’s needed the most.

Collateral-based Loans: Another viable option, especially if you have a low credit score, is opting for collateral-based loans. Providing collateral, such as property, equipment, or inventory, reassures the lender and mitigates the risk associated with your credit score. Secured loans typically offer more favourable terms and higher loan amounts.


Thus, your credit score plays a pivotal role in securing a business loan, but it’s not the only deciding factor. Exploring alternative lenders like Red Fort Capital, who consider the overall potential of your business, can be a game-changer. These lenders offer solutions tailored to your needs, even if your credit score isn’t optimal. Moreover, collateral-based loans provide a viable option to secure funding despite a low CIBIL score. Empower your business by exploring these alternatives and taking steps towards a prosperous financial future. Remember, a good credit score can open doors to better opportunities and financial stability for your business.

About Red Fort Capital

Red Fort Capital is dedicated to empowering Indian MSMEs (Micro, Small, and Medium Enterprises) on their path to business growth through customized business loans. We understand that securing a business loan in India can pose significant challenges, particularly when factors like a less-than-ideal credit score, a relatively short business history, unclear financial records, or variable cash flow come into play.
As a respected Non-Banking Financial Company (NBFC), we take pride in offering a diverse range of secured business loans, spanning from 1 to 10 Crores. What sets us apart is our remarkable ability to disburse funds fast, in just 7 days. Our financial solutions are meticulously designed to cater to a spectrum of needs, including working capital requirements, equipment and machinery purchases, invoice/bill discounting, and last-mile financing, among others.

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