All businesses, at some point of time, would require a financial impetus to help with their expansion goals or capital needs. A popular way to finance this is to avail a commercial or business loan. But how sure are you that your loan application will be sanctioned by the lender?
Here are three factors that one must keep in mind before you submit your business loan application.
Your CIBIL Company Credit Report (CCR)
Like individuals, a company too has a report of their financial history that decides their eligibility to avail a loan. A CIBIL Company Credit Report (CCR) is a record of your company’s credit history that is provided by banks and financial institutions to the Credit Information Bureau (India) Limited (CIBIL). Your company’s financial history is of utmost importance to lenders as it is an indicative of your financial behaviour. It is one of the deciding factors your lender will look at to decide if your business is worth lending money to.
An important point to bear in mind is that a CCR is different from your company’s Credit Rating. A credit rating is your credit worthiness as deemed by a credit rating agency once you’ve approached them for a rating. The agency studies the documents you submit to them and interviews the company’s management to arrive at a rating for your company.
To maintain a healthy CCR one must ensure:
- Timely repayment of loans
- No default in credit card payment
- There are no errors in your CCR. Errors are rare but do occur and could cost you a loan!
Company Profits and Assets
Another crucial deciding factor is the income of the company; current and projected. This helps lenders decide if the company can repay the loan.
Any asset that your company can pledge as collateral automatically increases your chances of getting a loan approval. Likewise, the capital that the owner of the company has invested is another important criterion lenders considers.
Contrary to popular belief, your individual credit score too matters when applying for a loan. The CIBIL score ranges from 300 to 900 with a score above 750 being considered as a healthy score. Lenders usually look at the credit scores of individuals at a decision-making capacity within the company such as the CEO, Directors, Financial Heads, etc. as an indication of reduced risk to them.
All it takes is some effort to ensure that these parameters are taken care of to ensure that your business loan is sanctioned. However, trends have changed due to the long, tedious process involved in applying for such a loan and nowadays, alternate financing methods such as venture capitalist funding, crowdfunding, invoice discounting, etc. have gained popularity.
What is your preferred form of funding? Let us know in the comments below.