Guide to Understanding Company Credit Report

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company credit report

Any market firm nowadays would require money and resources to go through numerous ups and downs issues. Any time a firm needs credit, whether it be for the down payment on a contract or the offer for a tender, the business must demonstrate its creditworthiness to the relevant lender. Business entities and proprietorships must show sound financial standing and have company credit reports in order to avail of the necessary credit line from banks and non-banking financial institutions. Similar to how a person’s CIBIL score demonstrates their creditworthiness, a company credit report serves as evidence of their creditworthiness. As the business’s owner, your personal credit score has no bearing on the company’s credit report.

What exactly is the CIBIL Company Credit Report?

The CIBILcompany credit report is a thorough document that summarises an organization’s financial situation. In other words, your company’s credit history is documented in a Company CIBIL Report or a company credit report (CCR). The Credit Information Bureau (India) Limited (CIBIL) keeps track of all business and individual credit-related activity, such as credit card and loan usage. This report was put together using data compiled from numerous banking institutions. This report is used by lenders to determine an enterprise’s creditworthiness. This report displays a company’s financial health and acts as a record of its previous behaviour. 

Before approving a loan, lenders frequently review this report to better understand a firm, including its ownership structure, parent or subsidiary organizations, the number of years it has been in business, etc. Compared to startups, older and more established businesses have a better chance of having a good credit rating. Many businesses may check a business credit report as part of their due diligence process before entering into a deal, merging, acquiring, or onboarding new suppliers, in addition to using it for lending purposes. A commercial credit bureau, like CRIF, which generates credit scores for businesses, compiles credit reports. Thus, for a business person, it is of prime importance to keep a check credit score

What’s in my business credit report?

The credit bureau report includes personal information, line of credit, public records, and hard inquiries. The report opens with information that can be used to identify a person, such as the firm name, the date it was founded, etc. Additionally, it contains background data on the organization’s parent and subsidiary firms, ownership, number of years in business, etc. Next, it contains information about past financial transactions, including payments, collections, revenue generation, bankruptcies, and more. The report’s final portion contains a list of all the organizations that recently requested a copy of the applicant’s credit report in response to their loan application.

Factors that influence your credit report

You must understand that the aspects which affect your CIBIL score will also affect your business CIBIL score as well excluding other factors. Let’s examine 3 such crucial aspects that have an impact on your credit report.

Credit History and Outstanding Debts: Credit history is the essence of a credit report and naturally has the most influence on your credit status. The longer the credit history, the better. The repayment history of a business indicates the concerned business has been making its debt payments on time without fail. To calculate and asses your credit score, your current and previous loans, the number of credit cards you are using and your outstanding debts are also considered.

Credit Utilization Ratio: The credit ratio is calculated by dividing the amount of available credit by the amount of credit you are currently using. You can understand it in another way, credit utilization ratio is your existing debt divided by your credit limit. Typically, it is given as a percentage on your credit report. Now, for a good ratio, you should preferably spend less on credit than 30 to 35 percent of your credit limit. A greater spending ratio lowers your credit score because it shows that you frequently use your credit card. Check credit score time and again. 

Characteristics of a company: A company’s characteristics are crucial to your business credit report. It follows that the business has maintained itself for a sufficient amount of time and has amassed a sufficient financial history. The industry the business is in, such as pharmacy, real estate, insurance, food & medicines, retail, manufacturing, etc., could be another characteristic. Because of the nature of the business and the market trends of that particular time, some industries might be seen as high risk while others are regarded as safer.

Benefits of Better Company Credit Report

To speed up the borrowing process: A good credit score not only boosts your chances of getting approved when you apply for a loan for your business but also makes the process go more quickly. It establishes a trustworthy reputation for your company in the eyes of the lender, which strengthens your application.

Increase the Loan Amount: You might require money to resolve cash flow problems, rent factory space, or purchase production software. In each of the three scenarios, you will require a substantial sum of money. A high credit score demonstrates your financial responsibility, giving you the leverage to request a larger loan amount. It is recommended for a business person to check credit score.

To benefit from lower interest rates and flexible tenor: Your business will find it simpler to obtain a loan at a cheaper interest rate if you have a high credit score. If your credit score is high, lenders won’t view lending to you as a risk and won’t feel the need to cushion the rate to safeguard their interests. Similar to this, you have a greater chance of selecting a tenor that fits your financial condition. As a result, you can choose a long term if necessary, repay the loan easily, and keep up the good credit rating of your company.

Conclusion

Credits and loans are somewhat lifelines for organizations and enterprises in India’s economic ecosystems. All firms are expected to be aware of the aforementioned three aspects, which together make up the business credit report. Download a credit report from CRIF and check credit score, the top consumer credit bureau in India, if you want to negotiate a transaction, onboard a new client, examine the risk of your suppliers, or simply want to check your own business’s trustworthiness.

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About the Author: John Watson