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The growth and development of micro, small and medium enterprises (MSME) in India are significantly dependent on the loans disbursed by the institutional lenders. New entrepreneurs typically apply for an MSME loan whenever they plan to expand their business by starting a new branch or by adding new facilities at the existing premises. However, despite so many banks and non-banking finance companies (NBFCs) to borrow from, not all businesses get the funds they need. 

In addition to the years for which the organisation has been operating and its holding of assets & liabilities, the credit rating is also a compelling factor that affects the eligibility for commercial finance. A small business loans in India is usually denied to enterprises with low credit scores. 

How is the credit score calculated? 

Founded in the year 2000, the Credit Information Bureau India Limited (CIBIL) keeps the credit records of individual consumers, businesses and other organisations. CIBIL has a mandate to improve the transparency, efficiency and accountability in credit access. It looks into the history of repayments on credit cards and loans. 

Financial institutions from where a business might have taken a credit card or borrowed funds earlier submit the records of its repayments to CIBIL on a pre-agreed upon basis. With this data, CIBIL creates the credit score or a detailed Credit Information Report for that business. This is used by the institutional lenders, insurance companies and government agencies to determine the creditworthiness of the concerned entity. 

The score is influenced by the amount that the business had borrowed, its repayment patterns and defaults or delays, if any. Using all available data, CIBIL calculates a three-digit number that varies between 300 and 900 points. The higher the score, the better are the chances of getting a loan for small business. 

You can check the credit rating and report for your business even before you apply for your loan. In addition to the financial organisation that you plan to borrow from, you too have the right to see where your business stands on the credit rating scale. 

What if the rating does not look attractive? 

A score between 300 and 650 may not be good enough to get you a business loan from a public or private sector bank. Indeed, many of them lend only to the SMEs with a rating of 750 and above. That, however, is not the disappointing end to your quest for an MSME loan. 

Here are some points to check for:

1. Ensure that the information is correct 

If you find your business credit rating to be below your expectations, the first thing to do is to verify whether the information shown is factual or not. At times, a score may not be based on the latest financial transactions. For example, you may have paid off all your creditors in a week, but the score may have been calculated considering the outstanding invoices. If the factors that went into the calculation of the score look wrong, you can inform the agency of the correct facts. 

2. Look beyond the conventional lending institutions 

When the details ofyour business credit information taken into consideration were right but the score still turned out to be ‘low’, you may be unable to get funding from banks and traditional NBFCs. 

A proper credit score may not be available for a venture that is too young in its industry. Usually, the public and private sector banks are reluctant to lend to commercial organisations that do not have a long span to boast of. 

On a positive note, a loan for small business in India can come from alternative lenders even if the business has a slightly poor credit score. There are FinTech companies that offer short-term credit products to businesses with a CIBIL score of 650. 

3. Check for credit products other than term loans 

 If your business fails to qualify for a term loan by a FinTech or it is only a one-year-old startup, it can be eligible for a FinTech merchant cash advance. This is given to businesses that frequently accept payments by credit and debit cards. 

As digital payments are already on the rise in India, a significant majority of SMEs qualify for merchant cash advance if they have a card acceptance vintage of six months and their monthly revenue includes at least Rs 1,00,000 generated exclusively via PoS machines. Other eligibility factors can be checked with the chosen lender. 

4. Your business may also qualify for loans tailored to its unique needs 

Not all businesses have the physical premises to display their products on fancy shelves. Many others are not customer-facing and operate only from back offices. They may not be looking for funds to expand or refurbish their shop/showroom/restaurant/office. Their needs for capital can be different. 

E-commerce is a newly emerged business segment that is eligible for hassle-free FinTech loans despite a weak credit score or short tenure in its industry. If you sell your merchandise online and have minimum quarterly sales of approximately Rs 1 lakh, you can apply for a loan online. This figure is not fixed and varies from one FinTech company to another. Extensive details and eligibility criteria should be verified through official websites or customer service teams while choosing the right lender. 

Summarily, the FinTech revolution has made it easier for enterprising business owners to get a loan for small business in India. They can apply for such finance online and need to submit only the soft copies of the required documents. The decision on their application comes in minutes and the funds reach their business bank accounts in 48-72 hours. Another aspect that makes the FinTech companies ideal loan sources for small businesses in India is the policy of no collateral. Assets such as immovable property and company equipment need not be hypothecated to these new age lenders. If you are still worried about the qualifications of your venture and need more information on the best credit product for your stream of business, you will feel comforted by the fact that FinTech companies also have customised credit criteria for SMEs in India. Talk to the representatives of an established lender and apply for the loan that can propel your organisation to growth. 


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