CIBIL Score for Business Loans – How to Improve it?

  • Rudri Rawell
  • Oct 13 2021
  • 8 minutes
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Loans are available not just for individual borrowers but also for various business entities. A good financial health is key to easily obtaining loans for companies and individuals. With a strong credit score, a business can easily avail various credit facilities and loans from banks and non-banking financial corporations (NBFCs). CIBIL score also known as a credit score plays an important role while applying for a loan. This 3-digit number represents an individual’s credit history. 

While a CIBIL score reflects upon the financial credibility of an individual, a business credit score reflects the creditworthiness of a business or company. CIBIL rank is given to a company just like a CIBIL score is given for an individual. The majority of lending institutions check the borrowing company’s CIBIL rank before granting any credit facility. 

Here, we will provide details of CIBIL score and rank for business loans while also sharing important information on the concept of company credit report.

What is a CIBIL score?

CIBIL stands for Credit Information Bureau India Limited. CIBIL scores and all the related information are stored by TransUnion CIBIL, India’s oldest credit information agency. A CIBIL score is a credit score calculated using a person’s or company’s credit history. It reflects the creditworthiness of the individual or business and helps lenders address questions like:

  • How many loans have been availed?
  • Are the payments being made on time?
  • Was any payment missed or loan defaulted upon?
  • Details of repayment history
  • What types of credit have been availed?
  • How much is the length of the credit history?

What is CIBIL rank?

While individuals are given a CIBIL score/credit score that ranges between 300-900, businesses or companies are assigned a CIBIL rank that ranges from 1 to 10. Here, 1 is considered best and 10 is worst. A CIBIL rank ranging between 4 and 1 is considered good by lending institutions. The two central parameters that go into calculating a business CIBIL rank include repayment behaviour and credit utilization. 

CIBIL rank is assigned only to those companies or businesses that have outstanding loans ranging between Rs. 10 lakhs to Rs. 10 crores. However, if a business does not have a CIBIL rank assigned, it cannot be considered as a negative factor. It only means that the company does not fulfil the criteria meant for CIBIL rank calculation.

What is a Company Credit Report?

A company credit report or CCR is a detailed document that contains information on the financial health of a company or business. A CCR is constructed using information gathered from various credit institutions. This report is often used by banks and lenders to determine the creditworthiness of a business before granting a credit facility, such as a loan. CCR would normally include the following set of information:

  • Background information–The initial sections of the report include the business’s background information such as business ownership, parent and subsidiary companies, years of operation, etc.
  • CIBIL rank–The report contains the business’s CIBIL rank, a 1 digit number ranging between 1-10. This rank is for businesses just like a CIBIL score is for individuals.
  • Financial information–The report also contains financial information which helps in determining the credit levels of the business and helps lenders know the levels of credit that can be granted to the business.
  • Financial history–A CCR also entails a company’s brief financial history, including repayment track record, revenue generation, collections, etc.

Including CIBIL, there are multiple other credit rating agencies in India. These agencies create detailed credit reports for both individuals and businesses. While this is a generic report format, it may differ from one credit agency to another. However, the credit reports designed by agencies are based on the information that is gathered from banks and lenders.

How to access a company credit report?

Credit rating agencies, including CIBIL, charge a fee for accessing company credit reports. A business or company can access it for as little as Rs. 3,000. For accessing it, a business must fill out the request form through the CIBIL website. Here are the steps to be followed:

  1. Go to – https://cibilrank.cibil.com/
  2. The detailed request form requires a business to enter information including legal constitution, registered address, name of the applicant business, company contact details, applicant PAN, etc.
  3. After making a payment of Rs. 3,000 through an online payment mechanism, CIBIL assigns a unique Registration ID and Transaction ID to the business.
  4. This ID can be used for navigating through further steps.
  5. The business has to then upload KYC documents.

Once the above-mentioned steps are completed, the CCR and CIBIL Rank are delivered to the business. In case a business wants to purchase the CCR and CIBIL Rank using a Demand Draft (DD), it can be done by downloading the request form and mailing it to the below mentioned address:

TransUnion CIBIL Limited

One World Center, 19th Floor, Tower 2A and 2B,

841, Jupiter Textile Mill Compound, Senapati Bapat Marg,

Lower Parel, Mumbai–400 013

How to improve your CIBIL rank and Company Credit Report?

It is very important for businesses to have a good CIBIL rank and a positive company credit report, failing which, the chances of easily availing a business loan could be slim. To improve a business CIBIL rank and CCR, a business needs to consider various factors impacting the same. Here are some of the key points to work on for ensuring a good financial track record for any business:

  • Whenever a business avails a business loan or credit, it must be taken in the name of the company as against an individual. This way, the business loan track record can be maintained against the business and not the individual. While applying for a loan is not bad, defaulting on the repayments can negatively affect the CIBIL rank. Thus, every business must ensure timely repayments of all debts to be rewarded with a good CIBIL Rank.
  • Many companies use company credit cards. Those who are using it must make sure to pay the dues on time since outstanding debt has a negative impact on CCR and therefore there are higher chances of CIBIL Rank going down.
  • In many cases, banks and lenders may report a company’s credit transactions with certain errors. Therefore, a business must keep a close eye on all credit transactions and if they spot a mistake, it must be immediately reported for rectification to avoid any negative impact on CIBIL Rank.
  • A business should never exhaust the entire available credit limit. It is sensible to take loans that the business can afford to pay back in time. Every business must try to maintain a healthy balance of incoming and outgoing transactions for good financial health.
  • Taking long-term business and repaying them on time can help in establishing a good credit image of the business or company among lenders. 

Conclusion

For fast and easy access to credit, businesses must constantly work towards maintaining a good CIBIL score and CIBIL rank. This ensures that a business has access to finance when required for growth, expansion, market presence, and other business-related aspects. The positive a company’s credit report, the higher the chances of financial preference from lending institutions.

FAQs

Can CIBIL score and CIBIL rank be used interchangeably?

CIBIL score and CIBIL rank are two different concepts and cannot be used interchangeably. CIBIL score is a 3-digit numeric summary of a CIBIL report, whereas a CIBIL rank is a numeric summary of a company credit report.

Can a business use CIBIL score for availing business loans?

A CIBIL score is applicable and available for individual borrowers. When it comes to businesses, they must use a CIBIL rank for availing business loans since it represents the financial standing of a business as reflected in the company credit report.

Which credit report accurately reflects a business’s credit standing?

CIBIL’s company credit report is considered to be an accurate reflection of a business’s credit standing and is widely used by banks/lenders before extending credit to businesses.

Can a business view a GST report along with a company credit report?

A business can view the GST report along with the company credit report on the CIBIL website

Does a business need to pay for a company credit report?

Yes, most credit agencies charge a fee for detailed company credit reports that are generated based on information gathered from banks and lenders.

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