banner banner

Stay Up-to-Date with Our Blogs & Articles

The texts on this website have been translated using an automated translation tool and its accuracy cannot be guaranteed. We recommend referring to the English version of the content for the most precise information. In the event of any disputes or inconsistencies, the contents in the English language shall be considered final and binding. IIFL HFL disclaims any liability or responsibility in this matter.
Go Back to Main blog page

The Impact of Credit Score on MSME Loan Eligibility

By IIFL Home Loans | Published On Dec 18 2023 7:51 AM 1 min read 170 views 391 Likes

MSMEs are a vital part of the Indian economy, accounting for nearly 30% of the country’s GDP and 40% of exports. MSMEs are a key driver of economic growth and development, as they provide employment and income opportunities, promote innovation and entrepreneurship, and support the Make in India initiative.

To sustain and expand their operations, these enterprises require financial assistance in the form of MSME loans. These MSME business loans are specifically tailored to their unique needs, providing a financial lifeline that helps support growth, innovation, and stability in their business.

However, unlocking the doors to this financial aid is not merely a matter of filling out an application form. This three-digit number determines the MSME loan eligibility. The credit score gives an idea of the business's financial reliability, its ability to manage and repay debt, and its overall financial health.

With IIFL Home Loans, you can get home loan approval in just 30 minutes*, enjoy attractive interest rates, flexible repayment tenure, and easy balance transfer. You can also access online tools and insights to help you calculate your EMI, choose the best MSME loan, and check your MSME loan eligibility.

Getting a MSME Loan for New Business can be tricky with a bad credit score

Impact of Credit Score on MSME Loan Eligibility

Do you know how important your credit score is for getting a loan? Your credit score shows how well you manage your money and pay your bills. Banks check your credit score to decide if they want to lend you money or not.

If you are an MSME, you need a good credit score to get a loan. A good credit score means you are a low-risk borrower. You can pay back your loan on time and use your credit wisely.

Lenders will offer you MSME loans with better terms, such as lower interest rates and higher borrowing limits. This will help you grow your business and achieve your goals.

A bad credit score means you are a high-risk borrower. You may have trouble paying back your loan or use too much credit. Lenders will be cautious about giving you money.

They will charge you higher interest rates, limit your borrowing amount, or even reject your loan application. This will limit your financial opportunities and affect your business growth.

So, how can you improve your credit score? You need to pay your bills on time, use your credit smartly, and handle different types of credit well. A good credit score will not only increase your MSME loan eligibility but also give you more options for MSME Loans for new business.

Importance of Credit Scores for MSME Loans for new Business

A credit score is a three-digit number that represents an individual's or a business's creditworthiness. In India, the score typically ranges from 300 to 900, with a good score being over 700.

Your credit score is determined by your credit history, which measures how well you have managed your debt obligations in the past. This score is crucial in determining the MSME's ability to access loans and other forms of financial assistance.

One of the types of loans that MSMEs can apply for is the SME loan. The full form of SME is Small and Medium Enterprise. This loan is specially designed for SMEs who need funds for working capital, expansion, or modernization.

Understand MSME Loan Eligibility to ensure your loan application doesn't get rejected

Factors Influencing Credit Scores

Credit scores are influenced by several significant factors that collectively impact a business’s creditworthiness and eligibility for loans. Here's a breakdown of these essential components:

Payment History

A crucial aspect of credit scores is payment history which holds substantial weight. It refers to the consistency of timely bill payments across various credit accounts. Making on-time payments boosts credit scores, whereas late or missed payments can negatively impact them.

Length of Credit History

The length of a business’s credit history is another vital factor. A longer credit history provides more data for assessing credit behavior and could positively impact credit scores.

Bottom Line

The article explores the role of credit scores in determining the eligibility of Micro, small and medium enterprises (MSMEs) for business loans. It explores the significance of credit scores and how these three-digit numbers hold the key to unlocking financial support and opportunities for SMEs.

If you are looking for a loan for your MSME, you can check out IIFL Home Loans. They offer loans for new businesses as well as existing ones. You can apply online and get approval in just 30 minutes*! Enjoy attractive interest rates, flexible repayment tenure and easy balance transfer.


Q1.What is the ideal credit score for obtaining an MSME loan?

Ans. A good credit score for an MSME loan is 700 or above. It improves your loan chances and terms.

Q2. How long does it take to improve a credit score for an MSME?

Ans. Timely payments, low credit utilization, and maintaining a good credit mix can gradually boost credit scores over a few to several months. The rate at which the credit score improves is dependent on individual circumstances.

Q3. Do multiple credit inquiries affect an MSME's loan eligibility?

Ans. Yes, frequent credit inquiries within a short period of time can have a negative impact on credit scores, which can then affect an MSME's loan eligibility. When an MSME makes too many inquiries in a short time, it can make them seem risky to lenders because it indicates that they are seeking new credit and taking on more debt than they can handle. This can lead to lenders being less inclined to offer them loans or credit.

Q4. What strategies can MSMEs implement to enhance their credit scores and loan eligibility?

Ans. To enhance credit scores, MSMEs should focus on timely payments, maintain low credit utilization, develop a mix of credit types, and minimize credit inquiries.


apply loan

Quick and Hassle Free Loan Processing

green ad
Prelude to Building Green - IIFL Home Loan's Guide to Sustainable Affordable Housing
Download report

Disclaimer: The information contained in this post is for general information purposes only. IIFL Home Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment, etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness, or of the results, etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Given the changing nature of laws, rules, and regulations, there may be delays, omissions, or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan product specifications and information that may be stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Home/ Loan Against Property/ Secured Business Loan/ Balance Transfer/ Home Improvement Loan/ NRI Home Loan/ Home Loan for Uniformed Services) loan.