How Do Banks Assess Your Business’ Creditworthiness?

There are endless aspects that have to be looked into to build a business from scratch. Collecting capital to bearing the expenses and utilizing resources to its maximum potential needs constant on a regular basis. Once the business starts to pick up a pace there is a desire to expand the business for the better and often a financial help is all that you need to do so. Banks play an important role and a good business credit score is the added advantage to your business.

When a business applies for a loan, the bank follows a certain protocol when evaluating the application. One thing the bank uses is the 5 Cs (Capacity, Collateral, Capital, Character and Conditions) of credit analysis to evaluate the application for the loan. Banks are always on the look-out for creditworthy customers to lend to, each bank has its own criteria as to how they arrive at their lending decisions.

It is also important to make it right the first time around because; with every credit rejection your credit profile could be affected in a negative way. Business credit scores give entrepreneurs an idea about the required purchasing power to pursue their dreams, solve a customer need or to expand into other areas.Primary factors taken into consideration while being assessed by the banks before deciding your business’ creditworthiness are:

Detailed Study of Your Business:

The banks do an extensive research about your business to evaluate the nature of the business and what future the business could end up with. A study on how the business has been running and for how long has it been existing in the marketing. A thorough check on the partners involved and the collateral connected to the business is also done to ensure the ability of the business.

Business Credit Score:

It is needless to say that a business credit score has to be above 750 to be on the good books of banks. It is essential to keep a regular check on your credit score and make sure that it does not fluctuate often. It often is the summary or a depiction of your creditworthiness and also gives a brief idea about repayment history of the credit that is already availed. A check on your credit score annually with a RBI regulated credit bureau like CRIF is an important step to maintain the creditworthiness of your business.

Past Searches With the Credit Bureaus:

Your past searches with a Credit Bureau like CRIF will be recorded as the number of times you have attempted to get credit from the lenders which might not be a very positive thing to do when it comes to maintaining a good credit history.

Loan History:

The company’s loan history gives a clear picture of what credit behavior it has. It checks each loan that you have taken in the last 36 months with your repayment regularities and irregularities. The banks also keep a check on activities where your company has been the guarantor.

Banks could also ask for memorandums in the case of complexities that are present in the organizational or ownership structure. But the most important factor and which we cannot stress enough is the presence of a good credit history; especially for a business creditworthiness which depends on your business credit score provided by authorized credit bureaus like CRIF. Keep your business credit score on a check and you will have no hindrance in getting funds for the growth of your business!

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