Can you apply for any type of business loan if your credit score is below the line?


The credit score is the prime determinant of your eligibility of getting the loan and also deciding the amount of loan that you may take for your business. For many of the small and mediumscalebusiness, having a loan is more of a necessity and less of an option. The lending institutions have certain algorithms in place to identify any risk that might lead to loan default. They want to make sure that the loan applicant can live up to the financial commitment.

The first and foremost factor that is considered by every individual bank and financial institutions is the credit score of the individual or the assets attached. In the case of anunsecured business loan, there is no concept collateral and hence, the factor that drives the process is the individual credit score of the owner and the business potential. There are other factors as well, as the level of documentation, the transactional history, the amount of money required, credit history of the business, business plans, the project reports etc.

On the other hand, when it comes to a secured business loan, the amount of money or the granting of the loan is directly dependent on the value of the collaterals and the assets that are attached to the loan application.

Although it is true that the credit score of an individual is the prime factor on which the application progression for most loans matters, it is not true that if your credit score is below the line, you cannot apply for any loan. The government and the concerned agencies understand the situations where an organization may have a bad credit history and hence, there are few options that can be looked for getting financial support.

  1. You may surely consider the mortgage loans as the loan amount, in this case, is majorly dependent on the value of the assets that are kept as a guarantee and the officials are also relaxed that if the loan amounts are not paid back, they have the alternative of selling the property and satisfying the given amounts with the funds received against the properties sold.
  2. Secured business loans can be another option where the collaterals are attached to the application which may be considered by the officials and your application will have a good chance of getting the needed attention.
  3. You may also look for getting the financial support from the Fintech Companies who are willing to give the money to the organizations on the basis of their merit and potential of the business and not on the criteria of the credit history.

Start-upbusiness loans are also available and mostly, they are backed by government policies. These loans have little to do with the individual credit history and the loans are granted on the basis of the business potential.

Unsecured Business loansare mostly dependent on the credit score because of minimum documentation and no collateral.

But if the credit score is low, what can be the alternatives of getting the loan sanctioned?

  • Secured

Facts and myths around online business loans?

There is no doubt that unsecured business funding from a fintech lender is the best option for a small business to obtain an online business loan without the hassles of extensive paperwork. Further, the loan application process has been drastically simplified by the fintech lenders, with adoption of digital technologies. Business loans from fintech players offer benefits ranging from easy EMI repayment options to competitive interest rates, unlike profit sharing terms insisted by investors or a long-drawn loan approval process in banks. However, despite the advantages, there are several myths that are prevalent amongst SME loan applicants. This is also because the fintech industry is a new and rapidly growing sector. Many individuals are apprehensive of new trends. We shall debunk these myths with facts.

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Myth 1: In case of lower loan amounts, there is a high chance of rejection

This is complete misinformation. A business should ideally apply for a loan amount as per requirement. Hence the question of low or high does not actually arise. The loan amount sanctioned in entirely dependent upon the business performance and the business needs. The loan approval depends on the satisfaction of the eligibility criteria of the lender.  An SME can apply for a small ticket size loan and get the same approved from an NBFC within 3-5 days if it meets the parameters of being financially strong and creditworthy.

Myth 2: Personal Loan is better than a business loan

This again does not hold in many cases. It is always prudent to separate individual accounts from business accounts. The sanction limit is much lower in case of a personal loan, which might be inadequate for business purposes. The interest rates on unsecured business funding are lower than personal loans. Further, the credit score of the business owner in his individual capacity is considered while granting a personal loan. This does not help build the credit score of the business. It is natural for every business to be subject to business cycles. In case of the business hitting a low, the credit score of the promoter takes a hit, which will impact his/her future chances of obtaining a loan. From the tax angle, interest on business loans can be shown as a business expense deduction in the P&L statement and goes towards reducing taxable income of the business. This benefit is not available in case of availing a personal loan.

Myth 3: Obtaining a business loan is tough

There is a common misconception that it is difficult for an SME to obtain a business loan. This is not true. If one meets the eligibility criteria of the fintech lender like at least Rs 40 lakhs turnover, a decent credit score, submission of GST and IT returns and an operating vintage of at least 3 years, there is a high likelihood of loan approval.

Myth 4: Lenders will insist on a loan against property

This is a common fallacy. In case of banks offering secured loans, collateral cover is mandatory in most cases. …