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It is good to have a good credit score when you start a business. Pic: livemint.com
Are you planning to launch your business shortly? Well, try to get a decent personal credit score--it will help you get business loans easier.
The credit score is a three-digit number given to individuals and companies by credit bureaus such as Credit Information Bureau (India) Limited (CIBIL). CIBIL is the top one and its score is widely used. A credit score above 700 is considered a good one.
Credit score benefits
Access to business loans: A high credit score can make it easier for you to secure loans. And, it can also help you get business loans, especially when you are just starting and don't have your business credit report.
Before giving business loans banks look at the business owner's credit score. If you have a high credit score, you get a business loan with favourable terms, repayment flexibility and lower interest rates.
Better credit terms: Individuals with good credit scores often have the luxury of choosing flexible repayment options and higher credit limits.
When you have a good CIBIL score, banks will be more interested in offering you long-term business loans if you want the flexibility to repay the loan in smaller instalments over an extended period. A good CIBIL score acts in your favour to create trustworthiness for long-term loans.
Lower interest rates: One of the benefits of having a high CIBIL score is securing business loans at lower interest rates. The credit score is one of the most important aspects that impact the interest rate.
If you have a high credit score and no previous loan defaults, it signals high creditworthiness to lenders. Hence, you become a low-risk borrower for the financial institution and they become confident about your repayment capacity.
As a result, you might get business loans at attractive interest rates, typically between 12% to 18%. And if you are repaying the loan over the long term, then a difference of 0.50% also makes a huge difference.
Faster loan approval process: A high credit score also accelerates the loan approval process. Depending on whether you apply for the business loan online or offline, the loan amount can be disbursed in 3-15 working days. This convenience allows you to get started with your business plans without delays.
Lower insurance cost: As a business, you have to buy insurance for your buildings, machinery etc. Insurance companies consider your credit score and a high credit score can translate to lower insurance premiums which helps you to get coverage at a lower cost.
Boost to negotiation power: A high CIBIL score comes with a high negotiation power which can help you get lower interest rate, multiple flexible repayment options and early delivery of the loan.
Lower cash flow worries : Cash flow is a major issue for small businesses. Having a good credit score can ensure that you don't face problems with cash flow and you can continue with your day-to-day business operations without any issues.
Attract investors: Do you want to onboard seasoned investors in the near future? Investors can help you to grow your company faster through their insights and connections. Moreover, having them onboard also opens up a lot of doors for you and your company that can fast-track the growth trajectory of your company.
In addition to your product, market and growth potential, investors will also look at your credit score and past borrowing records. Having a good credit score makes it easier for investors to invest and trust in your business as it shows that you can manage loans and other credit products effectively.
In conclusion, if you are looking to have to start your business, taking care of your credit score is also important. You can check your credit score at regular intervals, take note of discrepancies and get it resolved with the linked financial institution. It is important because many times people think that they have a good credit score as they are paying their EMIs and bills on time.
By arrangement with livemint.com