November 6, 2024 · 11 mins read
Santosh Kumar
Businesses and commercial establishments rely on credit for their day-to-day operations. But, just like individuals, they must have a favourable CIBIL report that shows they are trustworthy borrowers.
A commercial CIBIL represents the creditworthiness of a business. Prospective borrower companies must have a high credit rating to apply for a loan or credit card. Understanding how commercial CIBIL scores work will help your business apply for a loan successfully.
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While the notion remains the same, companies' CIBIL credit score differs from an individual's credit report. The credit information report contains a CIBIL score that is analysed by lenders before they approve or reject a credit application. The following borrowers are classified as commercial borrowers:
1. Proprietorships
2. Partnership Firms
3. Public Limited Companies
4. Private Limited Companies
Thus, just like a CIBIL score outlines the creditworthiness of an individual, a commercial CIBIL report determines the lending worth of a business. The report reflects the financial health of a business from information derived by banks and financial institutions regarding their past credit performance.
The need for a commercial CIBIL report arises when a commercial establishment applies for a loan and its creditworthiness is determined. The components of a Commercial CIBIL report are:
The report will primarily include information about the business and its background, like the owner's name(s), number of years the business has been operating, branches, and more.
All financial information that determines the company's financial health like revenue generated, collections, wages, fixed & variable costs, and more, will be included in the CIBIL commercial report.
The report will also include a CIBIL ranking that will help the lender understand the borrower's creditworthiness. As opposed to the personal CIBIL score that ranges between 300-900, the CIBIL commercial report includes a rank of 1-10.
All other financial and non-financial details are per the lender's credit lending requirements.
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The CIBIL commercial report is assessed by the lender for the same reason as the CIBIL score of an individual - to understand their creditworthiness. Here are a few reasons why a CIBIL commercial report is required before loan approval:
The lender gets an in-depth view of the applicant's credit history, in this case, companies.
As a lender, once you understand the credit value of a business, it is less risky to approve their loan. Businesses with a good credit reports have higher chances for approval because the lender views them as creditworthy with fewer risks of default.
If your commercial CIBIL rank is high, your credit request will be approved immediately. There may be no need for additional information like balance sheets, profit & loss statements, etc. However, bear in mind that each lender has distinct requirements, so you may still have to show your current & historical financial health even if you have a healthy credit score.
Knowing your credit rank will make it easier for you to know how credit borrowing works across different banks and financial institutions. Equipped with this knowledge, you can make an informed decision and apply for a loan that meets your requirements.
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All information in the commercial CIBIL report is an indicator of the applicant's viability as a borrower. A commercial CIBIL report contains the following components:
Business information includes all the details that help distinguish the applicant's company. It includes the company's legal name, registered address, ownership name and details, and registration number. You must provide accurate information that verifies your business and gives confidence to lenders to engage with your business. Business identity is also lenders' first line of defence against identity theft.
Once an inquiry is made to the lender, they will access the business's credit profile. This will reveal the entity behind the credit inquiry and the purpose of the inquiry. This information is vital for the lender because an overview of this data will inform them if the business has made excessive credit inquiries in the past. Too many loan applications indicate financial issues in the business or a habit of borrowing, which will likely result in a disapproved loan application.
Every commercial loan approval happens after a thorough check of the borrower's profile. This goes beyond checking the inquiry - it will look into the owner's financial data to determine business creditworthiness. The owner's financial history, tax status, and history of repayment are all detailed in the commercial CIBIL report.
The credit rank, or CIBIL rank, is a score that represents the company's creditworthiness and its ability to repay debts. The commercial CIBIL rank is based on a score of 1-10. The higher the rank, the stronger the borrower's credit profile. A high credit rank will also buy you the goodwill and trust of lenders. They will analyse your credit rank to perform a risk assessment to determine limits and terms of credit. With a higher rank, you can enjoy favourable terms in your credit and maintain a healthy relationship with lenders.
The credit history, also known as the credit profile summary, is an overview of a company's credit history. This report will detail all active credit accounts, including loans, credit cards, and mortgages, repayment history, credit limits, outstanding principal amount, and outstanding dues. Having fewer credits in your business's name with a healthy repayment history and responsible credit utilisation will improve your creditworthiness and chances of a successful credit application.
This differs from the background of the inquiry. This information pertains to recent credit inquiries made by creditors. It also determines the hunger for credit of the borrower by analysing all past inquiries made by lenders, and for what purpose. Analysing this data helps lenders understand whether past applications were approved or rejected and why. It also fosters responsible credit borrowing and deters the borrower from making too many credit requests.
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If you need credit for your business, you must plan meticulously before applying. This begins with knowing what your commercial CIBIL rank is. However, it is not as simple as checking your individual credit rating.
You have to pay Rs. 3,000 to access your commercial CIBIL report from the official CIBIL website. Here is a breakdown of the whole process:
1. Visit the official CIBIL website.
2. Fill out the application form and provide the following information:
- Company Registration Documents
- Registered Business Address
- Applicant's Name, Contact Details, & Address
- Contact Details of the Business
- Business PAN Details
- Other Details as Requested
3. Next, you have to pay a subscription fee of Rs. 3,000 via online payment (debit/credit card, UPI)
4. Once payment is successful, you will be assigned a unique Registration & Transaction ID to process your application. All information will be sent to your registered email address.
5. Lastly, upload your KYC documents and wait for your CIBIL report. The CIBIL report and the CCR rank will be delivered within seven business days to your registered company address.
Once you get your CIBIL & CCR report, you can decide on a credit request.
Once you obtain your Cibil commercial report, it is important to understand the parameters that influence it. This will help you identify any discrepancies and report them to the authorities as soon as possible. Here are the factors that affect a CIBIL commercial rating:
The length of your credit history will affect your CCR score. The longer a company's credit history, the more favourable its CCR report will be.
Outstanding debts can have a negative impact on your creditworthiness. This also includes all external debts and the total outstanding amount of a previous credit. Thus, before you apply, make sure you have a feasible outstanding amount that does not negatively impact your CCR.
The credit to debt ratio, or the credit utilisation ratio is the amount which a company spends on credit. This represents the credit hunger of an enterprise, and a higher credit-to-debt ratio means a business will spend credit more quickly. This will negatively impact your commercial CIBIL score.
Businesses need credit from time to time. From daily operations to procuring raw materials, the basic cost to meet these expenses is fundamental to running every business. The repayment history will detail any previous funds loaned to your company and your EMI repayments. Paying EMIs timely signifies good creditworthiness.
This is as simple to say - if your business has been running for a long time, it will reflect financial stability and a healthy history. The company profile will assess the life and size of your business. The older the business, the more trustworthy and creditworthy it would be deemed against, say, a startup.
Certain industries have a greater risk of credit default than others. These sectors will also play a role in your CCR. For instance, an offshore oil & gas business will have greater risk due to international market fluctuations or booking and travel agencies that have seasonal surges and low-demand periods. Such ventures from high-risk sectors will be considered less trustworthy than other stable industries like retail, banking, F&B, etc.
Here is how you can improve your commercial CIBIL ratings:
Make sure you pay all outstanding debts and due EMIs on time. This applies to business loans and the owner's personal loans as well.
If you are using your company's credit or corporate card, it is imperative you pay your dues timely. Remember that late payment or default will negatively affect your CCR and reduce CIBIL rank.
Track all business transactions and regularly monitor your company's latest credit statements.
With proper tracking of all money coming in and going out of your business, you can ascertain how much credit you can apply for. This will help you plan to be financially stress-free and maintain a healthy CIBIL rank.
Long-term loans indicate confidence and create a good business image in front of the lender. Plan ahead and opt for a loan that takes care of your business needs in the long haul. Once again, consistently pay all instalments on time through the loan period.
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The commercial CIBIL report is a mirror of your company's financial health and repayment ability. A healthy CIBIL rank will indicate high creditworthiness and improve your chances of loan approval. A low CIBIL rank will lead to the rejection of your credit application. In this case, make sure you pay all personal and company dues on time, keep your credit utilisation ratio low, and opt for long-term credits to improve your CCR and CIBIL rank.
What is a commercial CIBIL report?
A commercial CIBIL report details a commercial entity's credit history and repayment ability and reflects creditworthiness.
Who can access my business credit information?
Banks, financial institutions, and the registered business owner (s) can request CCR and CIBIL rank to determine creditworthiness.
Can I check my commercial CIBIL report without a GSTIN?
Yes. You can check your CIBIL rank and CCR without having a GSTIN of your business.
What if there is an error in my commercial CIBIL report?
If you spot any discrepancy in your commercial CIBIL report, visit the official CIBIL website and immediately raise a grievance with the credit bureau. If you have evidence of the error, submit it online and follow the steps to rectify any inaccuracy or error in your CCR.
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