An online business loan is a type of financing that is obtained through an online lender or financial institution. Online business loan eligibility refers to the criteria that a borrower must meet in order to qualify for a loan from an online lender. The eligibility requirements for an online business loan can vary depending on the lender, but typically includes factors such as the borrower’s business credit profile.
What is business credit profile?
A business credit profile is a summary of a businesses’ creditworthiness that is based on its credit history and payment behaviour. Having a positive credit profile can provide several benefits for businesses seeking loans.
Firstly, it can increase the likelihood of an online business loan approval and enable access to larger amounts. Additionally, it can help businesses obtain more favourable interest rates compared to their competitors. Since lenders assess a business’s repayment ability based on their credit profile, it’s crucial for business owners to take steps to enhance their credit profile proactively.
6 ways to build a strong business credit profile
1. Register your business
Registering your business as a legal entity such as a private limited company, partnership firm, or LLP can help separate your personal credit from your business credit, making it easier to establish and build business credit.
2. Be diligent with payments
Ensuring timely payment of dues is a reliable method to establish a robust credit profile for a business. Repaying online loans and settling credit card bills promptly is essential. Failure to make timely payments can have a negative impact on the credit profile of the business. It is advisable to borrow wisely, not only to improve the credit profile but also to contribute to the long-term growth of the business assets.
3. Focus on credit utilisation
A high credit utilisation rate is viewed as a warning sign that a business is at a greater risk of defaulting on payments. The credit utilisation rate indicates the amount of available credit that a business is currently utilising. Maintaining a low utilisation rate is vital to establish a strong credit profile for the business. According to general guidelines, business owners should aim to keep the utilisation rate below 30% to ensure a healthy credit profile.
4. Separate personal and business credit expenses
Maintaining a healthy business credit profile is essential for the long-term success of any business. One way to achieve this is by separating personal and business expenses. This means using separate bank accounts, credit cards and financial records for personal and business transactions. By doing so, business owners can easily track and manage their business expenses, which can help them make informed financial decisions and improve their credit profile.
5. Keep your credit account active
Keeping your credit account active is essential to improve your business credit profile. Regularly using your credit account and making timely payments demonstrates your ability to manage credit responsibly, which can boost your credit score and increase your chances of obtaining better credit terms and loan approvals. Inactive credit accounts can negatively impact your credit score and make it difficult for lenders to evaluate your creditworthiness. Therefore, it’s crucial to use your credit account regularly and keep it active to maintain a healthy business credit profile.
6. Update your business credit profile
It is important to ensure the accuracy of information that is being highlighted on your business credit profile. There can be scenarios when your credit profile can display errors and minor mistakes. This will make it challenging for businesses to be eligible for availing an online business loan. In case of discrepancies, one can reach out to a business credit reporting agency and address their concerns.
How can Razorpay help in acquiring online business loans?
Razorpay Line of Credit offers businesses an alternative way to secure funds without having to meet strict eligibility requirements for online business loans. It is particularly beneficial for MSMEs and start-ups who may not have a strong credit history or assets to pledge as collateral.
Razorpay Line of Credit has no processing charges, maintenance fees, or pre-closure fees, which further reduces the cost of borrowing. Businesses that have been operating for at least 12 months and have an annual turnover of Rs. 20 lakhs are eligible for this credit service.