Can Your Personal Credit Record Impact Your Business Loan?

When availing a loan of any kind, whether it is to meet personal needs or business-related needs, you will have to have a sound credit score. Lenders evaluate this score to understand your previous behaviour with regards to credit, and to ascertain if you are fit to take on the responsibility of wisely using and repaying a loan.

When you’re taking a loan for your business, you may wonder if your personal credit record has any role to play in convincing the lender about your financial abilities. The fact is that your personal credit score does impact your business loan application in certain situations. Take a look at when your personal credit score comes into play.

 

When you’re closely linked to your business

If you’re running a small company or a sole proprietorship, you are viewed as the individual taking all the important decisions. You are responsible for steering the company towards growth. In such a set-up, it is difficult to separate you, the owner, from your business’ finances as you are solely managing it. As a result, your personal credit score is used to evaluate your business’ financial health as well. A poor credit score indicates that you are less likely to be able to repay a business loan in a timely manner.

When your business has no experience with borrowing

If your business has had no prior need for credit or is just getting started, it is unlikely that it will have a credit report or rating of its own. In such a situation, lenders will do the next best thing, which is to examine your personal credit score instead. In case your credit history shows that you aren’t the most creditworthy candidate, you might find it difficult to access funds in the form of a business loan.

While it isn’t ideal that your personal credit score has a bearing on your business’ ability to raise funds, there are measures that you can take to improve your business’ chances of getting a loan. Here’s a look at two things that you can do.

Take a small loan and repay it in a timely manner

If the reason for rejection is not having a credit score at all, take measures to build it. Before you apply for a high-value business loan, take one or two small collateral-free loans. Use them smartly and repay them on time. This will allow you to boost your business’ credit score. Thereafter, you will find it easier to avail a high-value loan in the future, when you need it most to finance important business moves such as expansion or working capital management.

A loan that you can consider for all your business needs is Bajaj Finserv’s Business Loan. This loan gives you up to Rs.30 lakh and has simple eligibility criteria too. To avail it, you must be a self-employed professional, self-employed non-professional or an entity between the ages of 25 and 55 years. You must have a business vintage of 3 years and Income Tax returns filed for at least the past 1 year. Besides this, a chartered accountant must audit your business’ past year’s turnover.

Then, you can make use of funds from this collateral-free loan and enjoy benefits such as a Flexi Loan facility, online account access and pre-approved offers.

Set up a meeting with the prospective lender

Once you zero in on a loan, set up a meeting with the lender to make your case. Go prepared with a business loan proposal, highlighting the other positives of your business that make up for a poor credit score. Explain how you will use the funds from the loan to improve your business and support this with cash flow and profit projections. Also address what led to your poor credit score and the measures that you have taken since then to ensure that such a situation doesn’t arise again. Since it takes a few years to write off negative marks from your credit score, it is a good idea to make it clear that what has happened is in the past and is unlikely to happen again. This exercise in reassuring the lender will give you a better shot at getting loan approval, even if your credit score is average.

With this information, you can identify the scenarios where your personal credit score will come into play. You can rely on the aforementioned methods to build your company’s credit score and improve its access to business loans.

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