Check Your Credit Rating Before Applying For Microloan
Introduction
SMEs often depend on micro-loans, which are smaller-scale financial aids, to fuel their operations, expand their ventures, or navigate through challenging financial times. The approval process for microloans within the SME sector heavily depends on credit ranking and assessment.
Credit rating is an analysis of a business entity's or individual's creditworthiness and ability to repay a financial responsibility, as per income. A credit rating is considered to be the foremost thing that lenders check before microloan approval. A good credit rating signifies that the borrowing enterprise is capable of repaying the loan in time.
What is a CREDIT Rating?
Credit rating is a numerical representation of creditworthiness where 1 is the highest possible ranking and 10 is the lowest possible banking of an individual or a business. Credit rating is a key aspect that makes or breaks microloan applications. The credit rating acts as an indicator stating if the borrower is worth trusting with the new loan or not.
The Qualified Criterias for SME Loan
Some of the standards that practically all SME loan criteria follow.
1. Individuals should be aged between 23 to 65 during the period of the loan and its maturity.
2. The annual turnover for professionals - Above 10 lakh or more.
3. The annual turnover for sole proprietorships, partnerships, and pmited and private pmited companies should be above 20 lakh or more.
4. The annual turnover of self-employed individuals should be above 10 lakh or more.
5. Last but not the least, an individual or company applying for the loan must be engaged in business for a minimum of 3 years.
How Credit Rating Impact Your Application of Microloan
- It showcases the ability to repay the loan based on your credit rating
- It provides the interest rate you will be charged seeing your credit rating
- It directly affects your chances of approval
Compare all the Available Micro-loan Lending Options
1. Online Lenders
Online lenders offer a range of loan products to small business owners, including term loans, lines of credit, and microloans. Loan approval rates are quite lower for online lenders in comparison to traditional banks because traditional banks are subject to different regulatory requirements than online lenders.
2. Traditional Banks
Traditional banks offer a variety of business loans as online lenders. The main benefit of applying for a small business loan with a bank versus an online lender or microlender is that it provides minimum rates and convenience for qualified and good credit rating holders.
3. Microlenders
Microlenders are typically not-for-profit organizations that issue microloans up to a certain amount to good credit rating holders, which is often designed to provide financing for business owners who don’t qualify for traditional business loans. Microlenders usually have less strict eligibility requirements.
How to Apply for a Microloan?
- Research for the prestigious microfinancing banks and companies
- Check your credit rating and make sure that you qualify for the micro loan
- Fill in the application form with the necessary details
- Upload the required documents like KYC, which may include your PAN card, Aadhar Card, proof of business.
- After you have submitted your application, it will be reviewed and verified by loan experts, and upon approval, you will then be called for further procedure
Who is Eligible for a Micro Loan?
- Retailers
- Manufacturers
- Traders
- Sole proprietorship firms
- SMEs, MSMEs
- Partnership firms involved only in manufacturing, trading, or service sectors
- Private limited companies and closely held limited companies
Conclusion
This informed approach of checking the credit rating before applying for a microloan not only enhances the likelihood of loan approval.
Ultimately, a comprehensive understanding of their credit rating equips SMEs with the foresight and preparedness necessary to navigate the microloan application process successfully, enhancing business growth and stability.
