Businesses require additional financial support for their venture from time to time. The funding they receive, allows them to maintain an optimised cash-flow so that their operations and investments remain unhindered. Thus, to meet financial requirements, most companies settle upon availing loans. Today’s market hosts an array of lending institutions, and business owners should choose one that suits them best. To avail a loan, however, businesses must meet a high credit score.
A high credit score testifies a business’ creditworthiness, which facilitates it to avail invoice discounting services with KredX. Our integrated cash flow solutions can offer businesses easy access to a seamless cash-flow to carry out daily operations without a hitch.
Credit score is a numerical representation of an entity’s creditworthiness. It determines the risk associated with a business, when it comes to lending them funds. This score is measured on a specific scale, wherein a low score represents a high probability of loan default by a borrower.
While applying for a loan, financial institutions take credit score into consideration as a safeguard against payment delinquency. Credit rating agencies calculate a business credit score or commercial credit score premised on the firm’s debt obligations and history with suppliers and lenders.
The credit rating system in India for businesses varies from one agency to another. For instance, TransUnion CIBIL evaluates businesses on a scale of 1 to 10. The closer a company’s credit score stands to 1; the higher is its creditworthiness in the market.
CRIF India, an RBI-approved agency, scores business between 300 and 900. Here, a score of 700 or above stands as favourable and signals that the firm holds a sound repayment history.
The credit score for a business is measured by taking the following factors into account -
When a company wishes to avail a loan, the lending institution takes into account its credit score. To avail an unsecured loan in India, a company’s CIBIL score must be between 4 and 1, mandatorily. The financier also inspects the business’ revenue, profits, assets, and liabilities. In the case of smaller businesses, the lending partner evaluates the credit score of the business owners as well, since the personal and business finance of these firms are often intertwined.
Strict eligibility criteria and extensive documentation lengthen the loan approval process. Thus, when faced with a cash crush, loans are not an ideal source of financing.
Alternatively, KredX offers access to quick funds within 24-72 hours*, thereby ensuring seamless cash flow for businesses.
As the credit score is a numerical representation of a firm’s financial stability, it is vital to maintain it. The importance of holding a good credit score is summarised below -
A business can adopt several measures to maintain a high credit score, few of which are mentioned below -
The cardinal rule of debt repayment is to do it on time. Businesses should structure their payments in a way that it pays-off debt before initiating other payments, as it impacts the credit score. Additionally, business owners must try to pay back the total payment due to their credit instead of the minimum amount outstanding.
A company should follow the general rule of credit utilisation, which is 30%. It means that if it holds a credit line of Rs. 5,00,000, it should utilise up to Rs. 1,50,000 at a given time. So, if the business repays Rs. 50,000, then it can again withdraw up to Rs. 50,000, without disrupting the credit line. Withdrawing over 30% can lower the credit score.
An old company credit card offers a comprehensive overview of financial transactions and repaying capabilities of the cardholder. A credit card held for several years indicates stability and reflects the trust of lenders on the company. This has a positive impact on the credit score.
If a company avails more loans without repaying the earlier ones, its credit score can dip considerably. Managing debt is, therefore, vital and an easy way to do so is to avail one loan at a time. Additionally, a company must avoid applying for multiple loans simultaneously from various financial institutions. Multiple loan applications give an impression that the company is greedy for credit, which affects its credit score.
A business can leverage various tools to steadily revive a bad credit score. It can opt for a secured credit card, which is backed by a cash deposit from the cardholder. This deposit serves as collateral should the business default on payment.
Another course of action to revive a bad credit score is to avail invoice discounting. KredX offers invoice discounting service that extends quick funds without any collateral. We have discounted over 5,00,000 invoices through a simple digital process. With us, businesses, especially those with a thin credit profile, can optimise their cash flow and expand operations.