March 3, 2024

Small Business Loans without CIBIL Score Check – Possibilities & Consequences

Are you planning to apply for a small business loan without CIBIL score check? Read on to know the ways to apply for startup loan or small business loan with no CIBIL check by the lenders.

CIBIL score check is an indispensable task performed by leading financial institutions before any loan approvals. CIBIL score check acts as an indicator of your payment history, creditworthiness and repayment capacity. Therefore, it becomes a must for you to check free credit score online offered by four credit bureaus to analyse the possibility of availing funds at competitive interest rates. 

Still wondering whether it is possible to apply for a small business loan without CIBIL score check. Let’s first get the basics clear and further consider some common consequences of applying for a small business loan, as well as the possibilities of availing funds.

What is CIBIL score check?

CIBIL score check is an evaluation of an applicant’s payment history related to existing and past credit products like loans and credit cards, past debts and credit inquiries that are represented in the form of numeric that ranges between 300-900. It helps lenders assess the risks involved in offering funds to . Credit score check states to your lender that how reliable you are as a borrower.

 Possibilities of availing Small Business Loans without CIBIL Score check

Even if you have a low CIBIL score (below 650) or have no past credit history, still you can apply for startup loans. There are few selected financial institutions among Fin-Tech Companies, Non-Banking Financial Companies (NBFCs), Micro Finance Institutions (MFIs), Regional Rural Banks (RRBs) and Small Finance Banks (SFBs) offer small business loans without checking your CIBIL score. There are various loan schemes initiated by the Govt. of India that also offer loans without checking your credit score include MUDRA Loan under Pradhan Mantri Mudra Yojana (PMMY), Credit Guarantee Fund Scheme, Pradhan Mantri Rozgaar Yojana (PMRY), Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), etc.

The only condition is that you must clear the eligibility criteria, as defined by the lender and submit all the required documents at the time of loan application submission with the lender.

 Consequences of applying for Small Business Loan with no CIBIL check

Along with the possibilities, there are certain consequences associated with availing small business loans without a credit score check that are mentioned below:

Loans offered at Higher Interest Rates

As there is no CIBIL score check for small business loans by selected lenders, the interest rate offered shall be on the higher side, as there is a high risk involved for lenders before loan sanctioning. 

Loans are sanctioned against Collateral/Security

Low credit score diminishes the chances of availing unsecured loans or collateral-free loans. As the lender’s risk is higher in offering your funds, you might be eligible for secured loans. In this scenario, you are required to submit any collateral/security with the bank to avail small business loans.

 Not getting the desired loan amount

If in case, the credit history is not good for the applicant and there are many existing loans and credit cards under the consumer’s name, then the chances of loan approval with high amounts shall diminish. Most of the lending institutions offer small business loans of up to Rs. 10 lakh with repayment tenure of up to 12 months. Try maintaining a good CIBIL score of 750 and above to apply for collateral-free unsecured business loans of more than Rs. 10 lakh and up to Rs. 2 crore.

 Eligibility Criteria for Small Business Loans

Below are the basic eligibility criteria set by most of the financial institutions to be cleared before applying for small business loans in India:

         Borrowing entities: Self-employed professionals, including traders, retailers, manufacturers, shopkeepers, small business owners and other business entities

         Age Criteria: Minimum 21 years at the time of loan application and maximum 65 years at the time of loan maturity

         Business Vintage: Minimum 1 year for existing businesses

         Business Experience: Minimum 12 months, shall be defined by the bank

         Annual Turnover: To be defined by the lender

         No previous loan default with any financial institution

Note: The exact eligibility criteria shall vary from lender to lender and may depend on the applicant’s profile and business requirements.

 Points to consider:

Before finalizing or applying for small business loans, applicants should thoroughly consider the pros and cons attached with the loan. Any carelessness in loan application can lead to instant rejection, eventually leading to a drop in your CIBIL score, as credit bureaus consider it as a ‘hard enquiry’. So, check and compare all the available loan options before applying for a small business loan, as financing comes easy for small business loans but is likely to be heavy on your pockets if not planned properly.

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