We all know a poor credit score can affect future credit possibilities. But is it just limited to personal finance? Let’s find out!

Just like how individuals are assessed via their personal credit report, the creditworthiness of a business is assessed through a Company Credit Report (CCR). Though the rule of law states that personal and professional identities are to be considered distinct, many lenders are inquisitive about the personal credit profile of the business owner.

Here are the different ways your credit score for business loan can get hampered:

  1. Proprietorship:
  2. In the case of proprietorship business, the personal credit score is taken as the business credit score. Since there is hardly any distinction between the owner and the business, the credit score for business is the personal credit score. In fact, the law states sole proprietors to be liable for any form of debt in the business, hence any default will affect your personal credit score.

  3. Partnership:
  4. A partnership is when there are two or more individuals involved in the business. Since it is similar to proprietorship, the personal credit score is considered while approving a business loan. For a business, like LLP, the partners are liable for a certain extent of the debt.

  5. Limited Company:
  6. A limited company has its own corporate identity apart from the shareholders, thereby making the shareholders and directors not liable for any form of debt the business incurs. However, this does not imply that personal credit score for business loan is not assessed.
The comparisons above state that no matter how big or small businesses are, one must maintain his/her credit score because of your personal credit score being somewhere linked to your business.

Now, that we know the importance of a good credit score, here are ways that can help you maintain it:
  1. The key to maintaining a good credit score is to not default payments.
  2. The debt you wish to incur must not exceed your income.
  3. Do not apply for too many loans simultaneously
  4. Do not opt for long tenures as it could lead to a poor credit score.
Though a credit score for business loan is just one of the important factors considered, in certain cases, a good credit score also gives you the bargaining power in terms of the interest rate.

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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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