If one owns a small business like MSME, one always thinks about how to fund it in order to expand it. It is important to understand how business funding works, credit scores are calculated, etc. just like how credit scores are important for individuals to secure loans, for MSME loan eligibility too, credit scores are significant. 

Once an MSME applies for a loan online, the credit score is usually the first thing that is checked by any creditor. Credit reports are indicators allowing a financial institution to assess the MSME’s ability to repay any debt on time.

Factors Influencing an MSME’s Credit Score

• The length of time the MSME has been in business.
• Credit lines for MSMEs applied for in the last 9 months These are known as credit inquiries.
• The number of new business credit lines opened in the last six months, as well as the number of business credit lines used in the last six months. Such lines include credit cards, invoice accounts, loans, and leases.
• There have been any tax liens or collection amounts in the last 7 years.
• Payment history shows how often payments are made on time.

Must Read: Top 5 Challenges Faced by MSME/SME Financing in India

What MSMEs can do for Loan Eligibility?

Take out a Short-Term Business Loan and Make On-time Payments

Taking out a short-term MSME loan online andrepaying it on time demonstrates to the credit bureau that you can responsibly manage credit. Furthermore, this can assist you in improving a poor credit score and your MSME loan eligibility. However, before implementing this tip, ensure that all previous loans have been paid off.