The Impact of Credit Score on Business Loan Interest Rates

A business credit score works the same way as a personal credit score. If your business credit score is not up to the mark, you may find obtaining a Business Loan challenging.

Even if you get approval, the terms and interest rates will likely not be in your favour. Hence, having a good credit score is vital to securing the best deals on Business Loans.

Why Do Credit Scores Matter For Business Loans?

Many young entrepreneurs need funds to expand their business operations. So naturally, they turn to Business Loans as the easiest and safest way of securing funds.

However, NBFCs first look at the credit score to gauge the financial health of your business and its repayment capacity. If the score does not meet their expectation, they may charge you a higher business loan interest rate or reject your application altogether.

As you see, getting affordable business loans can be challenging without a good credit score. Not only financial institutions but your vendors and partners also keep an eye on your credit history. It affects their willingness to extend credit or work contracts with you.

Therefore, businesses must level up their credit score.

Benefits of a Good Credit Score

Faster Loan Approval

A good credit score reflects your outstanding credit behavior. It shows that you pay all your dues on time and strengthens your credibility. As such, you will likely face fewer issues during loan processing and approval.

Better Interest Rates

Lenders consider it comparatively safer to loan money to businesses with good scores and would be willing to offer lower interest rates to them. Not just lower interests, they may also give you the benefit of lenient conditions and flexible tenures.

On the other hand, lenders categorize businesses with lower credit scores as ‘risky’ customers. Therefore, they consider it prudent to charge higher interest rates to compensate for the risk they are taking with you.

Attract Investors

A good credit score also helps entrepreneurs get funds from external sources besides the Business Loan. This is because investors are more likely to trust businesses with good repayment records.

How to Improve Your Business Credit Score?

If a low score is impacting your ability to avail of affordable loans, the first step is to improve the score. Here are some steps you can take to build up your score:

• Pay all outstanding bills and dues
• Limit your credit utilisation to 30%
• Keep business debts level low
• Pay your business creditors on time
• Do not close old business credit card accounts
• Regularly check your credit report for any discrepancies

Your credit score may also suffer because you do not have a credit history. In that case, taking a small loan, you can quickly repay within a short tenure can help. You can use a business loan calculator to determine the EMI and total interest on the loan.

Get a Business Loan Today

If you’re looking for collateral-free Business Loans with flexible tenure, Clix Capital can be your ideal lender. Whether you have big or small business requirements, Clix Capital can provide funds ranging from 5 lakhs to 50 lakhs. The best part is they offer loans on a minimum Experian credit score of 750.

You can also use their easy loans to build credit for the future, so you do not suffer when your requirement increases.