How CIBIL Score Helps Get Short Term Business Loans
10 Apr 2017
Manish Mehta owns a small textile company. At the helm of a family-owned business, he has been running the business successfully for the past 10 years now. An honest taxpayer, Manish has maintained a good CIBIL score for quite some time now. A new business opportunity knocks at his door and he is keen on seizing it. But, to be able to do that, he requires substantial monetary assistance—in other words, a short loan. Do you think Manish will be able to get a short-term loan online?
Certainly! Let’s see why.
What is a CIBIL Score?
Ranging between 300 and 900, a CIBIL score displays one’s credit health, or their ability to repay loans in time. This is a key credit parameter that lenders refer to. You have a poor credit health if your CIBIL score is tipping at 350. Whereas a 750 CIBIL score means you have fared well in your credit report. This, in other words, indicates that you have filed all your taxes consistently, have a good bank balance/statement to show, earn a steady income and generally manage your money well. A financial pulse that needs to be checked consistently, a businessman’s CIBIL score — when positive — can help him reap multiple benefits.
When it comes to searching for short loans, working capital, short term business finance or funds by any other name, evaluation of one’s credit score and report by lenders makes for one of the most significant aspects of the credit application process. This brings us back to the fact that a good CIBIL score equals better chances of you procuring short loans.
Calculating your CIBIL Score
A lot goes into assessing a CIBIL score. As much as 30% weightage is given to your past financial records and/or performance; 25% weightage goes to credit type and duration, and credit exposure. Lastly, there are several miscellaneous factors that determine the remaining 20% of your CIBIL score. Business opportunities may come up suddenly and you need to be in a position where you can easily borrow additional funds to capitalize on a deal. Maintaining a good financial track record will pave the way for swiftly procuring short-term business finance.
Tips to keep it health
Improving your CIBIL score is a sure-fire way of procuring short term loans online.
The following tips will ensure your CIBIL score remains above 750:
- Avoid becoming a joint account holder or guarantor of loans. Any default from the other party will reflect on your CIBIL score as well.
- Use windfall gains to make pre-payments as and when you can. An early repayment will lift your credit score.
- Do not opt for minimum payments on your credit cards. Choose full payments.
- Pay your EMIs diligently.
- Never pay your dues one day before the last day by check. As processing of checks takes time, your payment will be received only after the due date, reflecting in a lower CIBIL score.
CIBIL helps you meet unexpected expenses
Businessmen often find themselves in situations where they must take care of sudden, urgent expenses. How do you take care of that? Not having enough funds can mean serious damage to your business. In such cases, applying for short-term loans online makes for a smart choice. Meeting emerging business needs through short-term business finance is possible if you have been maintaining good credit health.
Fulfilling minimum eligibility criteria while applying for short-term loans online makes the entire process that much easier. The fast pace of digitization in many aspects of urban life — banking, online retail, social media—means a vast amount of customer data is available online about you. Before underwriting any short-term business finance, banks as well as alternative lenders will tap into to an individual’s past business and credit performance. Instant approval/disapproval of short loans depends heavily on your CIBIL score.
Your CIBIL score is a record of the payment history of your business acquired through data provided by banks, housing finance companies, financial institutions, non-banking financial companies, credit card companies, etc. The score is arrived at by evaluating a number of parameters, detailed below.
Before approving short loans, lenders usually check your business history for the following parameters:
Repayment capacity: A good Company Credit Report (CCR) increases the chances of a loan application getting approved. Using data analytics, lenders estimate if a company can repay the loan comfortably. Short loans offered online by several banks as well as informal financiers take into consideration a company’s repayment history and whether there has been any instance of late payments or defaults.
Collateral: Having collateral increases a company’s chances of acquiring a loan several-fold. However, there are many informal financiers that offer short-term business finance even in the absence of collateral.
Capital: Financial companies examine the quality of capital the owner has invested in their company. The kind and extent of investments made by a business owner are also considered at the time of short loan approval.
Leverage: Lenders examine the amount of debt on a company’s balance sheet.
Inventory: Lenders review the raw materials and goods of a company, which are (or will be) ready for sale.
Receivables Turnover: Lending institutions review the amount of accounts receivable vis-a-vis sales.
Gross Profit Margin: Net sales minus cost of sold goods are also analyzed.
Liquidity: The amount of working capital your company has will be taken into consideration.
Turnover: Lenders will review the annual sales volume, sales taxes and discounts to determine your ability to make repayment.
With the business landscape becoming increasingly competitive, it is essential to be on the lookout for business opportunities that will help you stay ahead of competition. This requires a business to be pro-active and monetarily ready to capitalize on market trends. This is possible with short-term business finance, which is easily available if you have been keeping your Company Credit Report in good health.