If you are a small business owner you know only too well the trials and tribulations of obtaining a credit line for your operating expenses. Over and above that if your CIBIL score is not up to the satisfactory level of 750 (out of 900), you might as well forget about approaching from a traditional financial institution. What then are your best options for obtaining credit for your business when you are in dire need of funds? Read on to find out more:
Approach a non-traditional lender
When you are in dire need of funds to sustain the operating expenses of your business, the first thing on your mind perhaps is a hassle free personal loan. Such a loan is top of the mind because it is easy to obtain in a short time frame as compared to traditional business loans. However with a low CIBIL score, it will be difficult to obtain one. In fact, a traditional lender is unlikely to accept your application if your CIBIL score is anything below 750. Your best option in such cases is to approach non-traditional lenders such peer to peer (P2P) lending platforms.
Why P2P is the best option
Peer to peer lending platforms are increasingly rising in popularity in India. Not only can you get a collateral free loan from such platforms, you can even get a loan for low CIBIL score here. Most business owners find it difficult to access loans from traditional lenders for the lack of good credit score. While we are not suggesting that a poor CIBIL score can be ignored, you as a small business owner can tide over your immediate credit issues with a loan from a P2P lender till your cash flow resumes.
P2P lenders go beyond the credit score of the business owner, and may assess your credibility on the basis of as many as 40 parameters. This can include your business network, your expansion plans and even your social media footprint. Further if you can provide any collateral the limit of the loan can be enhanced, thus giving you the much needed shot in the arm. Taking a loan for low CIBIL score from a P2P lender may thus turn out to be a viable option for a business owner looking for quick and efficient source of funding.
How to keep your credit good
A quick loan can help you tide over an immediate emergency, but over the long term you will need to prepare for a formal business loan as you scale up your business. For this, you will need to maintain a healthy credit portfolio. To get business loans in future you will need to obtain a CIBIL Company Credit Card Report or CCR. While CCR is not a rating or a score like a CIBIL score it is referred to widely by lenders when they are assessing your creditworthiness. All the credit transactions made by you on behalf your business get recorded in the CCR. It is thus very important to maintain a healthy credit profile. You can begin by timely repayment of your personal loan for your business needs to begin with.
Some other tips to maintain a good business credit profile are as follows:
Separate personal expenses from that of your business– Most small business owners make the mistake of billing expenses on their personal credit cards. The impact of transactions therefore reflect on their CIBIL score instead of the CCR. It is thus important to keep business and personal transactions separate through a different credit card. However do bear in mind that your personal credit behaviour (through your CIBIL score) is also referred to while sanctioning a business loan when you are a business owner. Thus exercise caution and maintain good credit behaviour on both the personal and business front.
Do not overleverage
Traditional financial institutions always observe previous credit behaviour before sanctioning a fresh loan. The number of loans availed of as against your turnover is an important ratio that will determine your creditworthiness. If the debt amount is far greater than the income your business generates you will be considered to be overleveraged. This in turn will reflect poorly on your CCR and lower your chances of getting a loan when you are in dire need of one.
When you are running a business, it is prudent to prepare a good business plan and carry out careful financial planning. Once your accounts are impeccable and you have maintained good credit behaviour, you can be sure of accessing credit for your business with ease.
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