Short term loans are availed for a short period of time, ranging from 6 months to 24 months. The short term loans are availed to meet short term needs of the business and are usually used to finance short goals. The short term loans for business are usually not availed for capital investment or to buy machinery.
Said this, there are times when the business loan lender rejects your application for low CIBIL score. A CIBIL score is a 3-digit number that signifies the borrower’s creditworthiness. And NBFCs and banks mostly rely on it to evaluate the eligibility of the borrower. A low CIBIL score represents low creditworthiness and irresponsible behavior of the borrower. So, loan lenders in India usually do not offer loans to borrowers with low CIBIL score.
In such a scenario, the short term loans are very helpful in terms of they help in improving CIBIL score.
Improving CIBIL Score with Short Term Loans
Also Read: How To Check CIBIL Score For A Business Loan?
You can improve the CIBIL score by reviewing your CIBIL report at regular intervals, paying all your dues on time, reducing the existing debt on you, and minimizing the usage of credit card. In addition to these steps, short term business loans also help in reconstructing CIBIL score.
Although, many people also suggest that credit cards are also a good way of improving the CIBIL score. But credit cards usually come with high interest rates. Whereas the loan lenders in India offer business loan at the lowest interest rate. Therefore, improving the CIBIL score with short term loans is a better choice.
The following are the ways by which short term business loans help with positive CIBIL score:
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People with no credit history can avail a business loan for short term. By repaying the loan on time, it will reflect on your CIBIL report. By availing a loan for business and repaying it on time, you can expect a positive remark on your CIBIL score. Improving CIBIL score with a short term loan is the best and an easy way.
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Availing a loan from banks with low CIBIL score is difficult. Banks lay stringent criteria for people with poor credit ratings. And bad credit business loans are also offered at high interest rates since the risk rate is high.
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Upon availing a loan and successfully repaying it, the lender would report your timely repayment track to all major credit bureaus.
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If the main purpose of availing the loans is to build a credit score, then availing short loans makes sense. This way, building the CIBIL score will not let you take a huge debt.
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Credit cards are offered at comparatively high interest rates. And a loan for short term is comparatively cheaper.
- To read other ways to improve CIBIL score, click here.
Benefits of High CIBIL Score
Also Read: How To Improve CIBIL Score For A Small Business Loan?
The following are the benefits of high CIBIL Score:
Quick Loan Sanctioning: A good CIBIL score gives the lenders your first impression that you are creditworthiness. This is the first step towards availing a loan for the business. When you first apply for a business loan, the lenders check your CIBIL score. And if your score is more than their minimum requirement, your business loan application would be further published. So, the lender would further check your business loan eligibility only if your score is high.
Lower Interest Rates: A good CIBIL score lowers down the risk for the lenders. This, in turn, brings you in position to negotiate with the lender and come to the best possible interest rate. So, a high CIBIL score brings you in position to bargain with the lender to the lowest CIBIL score possible. On the other hand, a low CIBIL score makes you pay high interest rate since it makes lending money to you riskier.
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