Businesses need to keep their financial records up to date to avoid last-minute hassle. As a business owner, you might have spent hours reviewing your profit and loss statement, evaluating cash flows, and tallying the balance sheet. But tell us, when was the last time you checked your commercial CIBIL report? You might not even remember.
A commercial CIBIL report is a key document informing creditors about your repayment potential. CIBIL prepares this report after considering multiple parameters.
If you are unaware of these aspects, read this article to the end.
1. Payment History
The foundation of any organisation is its funding. It is a recurring requirement, as businesses need finances to pay their workforce, invest in new opportunities, establish new branches, and pay for utility expenditures. As crucial as raising money is, settling the debt fund\'s EMIs is just as crucial.
If you consistently miss or postpone EMI payments as an owner, your business\'s CIBIL record will be severely damaged.
The best ways to handle this are to automate the payments and ensure that your company bank account has enough money on the day of the EMI due date.
2. Credit Utilisation Ratio
Most businesses prefer keeping credit cards to deal with daily expenses. Whether related to procuring stock material or paying creditors, businesses simply swipe their credit cards and settle the invoices.
But did you realise that, as a business owner, engaging in such behavior substantially affects your commercial credit score? According to the rules, you are viewed as a risky borrower who lacks the resources to cover essential business expenses if your company spends more than 30% of the total credit card amount.
Rather than utilising credit cards, you should set aside a portion of your income for everyday needs.
3. Multiple Applications
Rushing for funds is common when a financial emergency hits your company. However, in such situations, many businesses simultaneously submit multiple applications to different lenders, leading to a decline in the company\'s CIBIL score.
Whenever you apply for business finance after learning what is KYC, the lender asks CIBIL and other credit bureaus to provide them with your report. This process is known as a hard inquiry and is noted in your report. Too many hard inquiries categorise you as a credit-hungry borrower.
4. Public Records
Credit bureaus collect individual and business information from various sources, not solely from financial institutions, to compile a credit report. One such source is public records, which encompass legal judgments, liens against any company, and instances of bankruptcies.
For instance, if a company has been involved in financial fraud in the past, and the court has issued a judgment against it, CIBIL will incorporate this data, leading to a significant decrease in your credit report.
5. Length of Credit History
Keeping your older loan active is advised by choosing a longer repayment tenure. This will give bureaus a clearer idea of your repayment behaviour and thus improve your creditworthiness.
6. Credit mix
It is recommended that a debt portfolio mix unsecured and secured forms of financing. The more diversified the portfolio, the better it gives the impression that you can handle debts smoothly.
Conclusion
Maintaining a healthy commercial CIBIL report is crucial if you want to inject capital into your business at regular intervals through loans. A good credit score ensures you can secure financing at an affordable rate of interest and gives you the upper hand to negotiate terms and conditions with the lender.
Having readily available funds ensures you do not miss out on any great opportunities that come your way.
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