Small Business Suffering With Bad Credit? Here Are Few Options For You
Ram Vasudevan was very passionate about gadgets. Thus, he opened a mobile and accessory shop in Ernakulum. He was obviously interested in expanding his gadget business. However, he did not have enough money to fund his dreams. Moreover, he had a bad credit score. He knew that he would have to face a few rejections before his loan would be approved. However, this did not discourage him. He explored the option of loan against property from a Non-banking Financial Company (NBFCs) for his small business.
Let’s explore some options that you can choose if you also have a bad credit score:
NBFCs Over Banks
Banks usually have stricter rules for loan approvals. NBFCs, on the other hand, are known for quick and easy approvals. Banks rely absolutely on the credit score assigned to you by Credit Information Bureau India Limited (CIBIL). A low credit score might lead to delays, complications or rejections. With NBFCs, you stand a better chance of getting loans even with a low credit score.
Loan Against Property
In times of need, your precious asset becomes your saviour. You can take a loan by pledging your property. This means, your lender can seize your property if you default on repayments. Your credit score does not hinder the borrowing process in this case. This is because the potential possession of your property reassures the lender. Though a loan against property is a good source of fund, your house is at stake in case of default.
Also Read : Loan Against Property – A Multi-Purpose Loan
Loan Against Fixed Deposits (FDs)
An FD requires you to deposit money for a fixed period of time. You can withdraw from such an account during emergencies. However, this can attract a penalty. Thus, to add liquidity to your FD, several lenders offer loans against them. You can borrow up to 90% of your FD amount. Lenders might ask for a small processing fee while disbursing such loans.
Credit Trading with Suppliers
Trade credit is a type of arrangement between you and the supplier. Through this agreement, you ask the supplier to give you goods or services without immediately charging for it. Such a practice ensures smooth functioning of your business.
Bill of Exchange
A bill of exchange is a mode of trading on credit. It is a written promise that you give to the supplier. You undertake to pay on a later date. However, the supplier can get his money before the due date. For this, he has to sell the bill to the bank at a discount, usually a small amount. In such a case, the bank then becomes the payee. Thus, you make payments to the bank on the due date.
Business Credit Cards
Such cards are useful when you want to segregate your business and personal funds. Usually, the maximum limit on a business credit card is higher than that of a personal card. With a business credit card, you ensure that unavailability of cash doesn’t impact your business. You can buy goods or services with business credit cards. However, be mindful of the number of times you swipe the card. It might lead to high cost of debts in the future. Also, a delay to repay the credit card bill will lower your credit scores.
Bank Overdraft (OD)
Bank OD allows you to withdraw more than what you have in your account. However, there is a limit on such withdrawals. It is a good option for short-term borrowing. You pay interest only on the amount you use. The involved documentation is minimal as the lender already has your details. However, too many ODs on your bank statement can further reduce your credit score.
A good score is important. However, don’t let these scores decide the future of your business. You can borrow loans for your business even with a bad credit score.