This is very true that having bad credit in India can be a permanent stop when you need money for your business. When a person walks into a bank, submits documents, and the first thing and bank checks is your CIBIL score. If your credit score is low, and officials of the bank will not entertain you any longer.
However, some factors can help you get a business loan with bad credit. I know this is very difficult, but with the right approach, the right lender, and a bit of preparation, many businessmen in India still manage to get funding from a bank.
This blog will help and guide how Indian lenders think and how small business owners actually get loans despite poor credit history.
Table of Contents
Understand What “Bad Credit” Means in India
In India, most money lenders rely on your CIBIL score, which usually ranges from 300 to 900.
- 750+ → Excellent
- 650–749 → Average
- Below 650 → Weak/bad credit
Some factors responsible for a poor credit score
- Missed EMIs or credit card payments
- Loan defaults in the past
- High credit card utilisation
- Too many loan enquiries
If your score is low or poor, banks think you are not the right person to give a loan. It is very risky that you will return the money on time to the bank.
Can You Really Get a Business Loan with Bad Credit?
Yes, you can get a loan, but not easily from regular banks.
Public sector banks and big private banks are very strict with their rules and regulations. However, today’s Indian lending ecosystem has become large.
- NBFCs
- Fintech lenders
- Digital lending platforms
- Government-backed schemes
These institutes focus more on cash flow, business performance, and repayment capacity. They do not just consider credit score.
Practical Ways to Get a Business Loan with Bad Credit
1. Look Beyond Banks – NBFCs and Fintech Lenders
If your credit score is low, don’t waste time running behind banks.
NBFCs and fintech lenders are more flexible.
They have certain conditions for giving a loan, like
- Charge slightly higher interest rates
- Offer shorter tenure
- Ask for some additional documents
But they do approve loans even with low credit, especially if your business is active and earning.
This is one of the most realistic ways to get a small business loan for bad credit in India.
2. Show Strong Business Cash Flow
Many lenders care more about one fact that what your business earns today than what went wrong in the past.
You must make sure you can show below shared documents.
- Last 6–12 months bank statements
- Regular customer payments
- Stable monthly income
3. Apply for a Secured Business Loan
It is important that if unsecured loans are getting rejected for you. You must consider a secured business loan.
You can use Property, Fixed deposit, Gold, Insurance policy
Even with bad credit, secured loans have a much higher approval chance because the lender has collateral.
Many Indian entrepreneurs successfully get a business loan with bad credit by pledging assets, even temporarily.
4. Add a Co-Applicant with Good Credit
Adding a co-applicant with a good credit score is a very great practice. It will create trust and make it easy to get.
If your spouse, business partner, or parent has a good credit score, add them as a co-applicant.
The lender evaluates the combined income and the combined credit profile
This can significantly improve approval chances and sometimes even reduce interest rates.
5. Start Small and Build Trust
If lenders are hesitant, always try to apply for a small loan. Start with a smaller loan amount or shorter tenure.
Repay it properly for 6–12 months. Once your repayment track record makes sense, lenders themselves will offer higher limits.
This step-by-step approach works well for entrepreneurs rebuilding credit.
6. Explore Government Schemes Like Mudra Loan
If your business is small, Mudra loans under PMMY can be a big help. Because no collateral is required. They focus on micro and small businesses and are more flexible credit assessment
Even people with average or poor credit have received Mudra loans when business documents were strong.
7. Fix Credit Errors Before Applying
Sometimes your credit score is low because of:
- Wrong entries
- Closed loans still showing active
- Incorrect overdue amounts
Before applying for any business loan with bad credit, check your CIBIL report carefully.
Fixing errors alone can increase your score by 30–50 points that’s enough to change lender decisions.
Things Lenders Will Definitely Check
Even if the credit score is low, lenders still expect the basics to be solid:
- GST returns (if applicable)
- ITR filings
- Business registration
- Bank statements
- Business vintage (minimum 1–3 years preferred)
The cleaner these documents are, the higher your approval chances.
Common Mistakes to Avoid
Many business owners make these mistakes when applying with bad credit:
- Applying to too many lenders at once
- Hiding past defaults
- Exaggerating income
- Taking high-interest loans without planning repayment
Real-Life Example
Ramesh runs a small manufacturing unit in Faridabad. His CIBIL score dropped to 610 due to delayed EMIs during the lockdown.
Banks rejected him outright.
He then:
- Applied through an NBFC
- Showed 12 months of strong GST sales
- Took a smaller loan first
Within one year of timely repayment, his score improved, and he refinanced at a better rate.
Conclusion
Getting a business loan with bad credit in India is challenging, but far from impossible.
The key is:
- Choosing the right lender
- Being honest about your past
- Showing strong current business performance
- Taking smart, calculated steps
Bad credit doesn’t define your business potential forever. If you have patience and follow the right approach, you can still get funds and grow in your business. If you are serious about your business, then lenders will help you in your journey for sure.
