Mudra Compass

The MSME sector is the backbone of the Indian economy and its growth. To boost the MSME sector, the Indian government is always supporting through its various initiatives, and schemes, such as, Atmanirbhar Bharat, ECLGS, CGTMSE, PMMY, Mudra Loan and so on.

However, lack of financial awareness is one of the major factors that affect the growth and development of the MSME sector. To gain maximum benefit and better financial access, MSMEs must be aware of CIBIL rank and commercial credit report.

What is CIBIL Rank?

The CIBIL rank summarizes your company credit report in the form of one number. Just as individuals are given a CIBIL score ranging from 300 to 900, Companies are assigned a CIBIL rank ranging from 1 to 10 where 1 is best and 10 is worst. However, a CIBIL Rank between 4 and 1 is considered good by most financial institutions. Most importantly, CIBIL rank is an indication of a company’s creditworthiness.

The rank is now available for companies with current credit exposure of up to Rs. 50 crores. Please note that non-availability of CIBIL rank is not a negative thing.

While lending to MSME, banks and financial institutions access the CIBIL rank and commercial credit report of MSME. Many banks and financial institutions offer a lower interest rate on loans if MSME has a better CIBIL rank.

Hence, it is always wise to understand CIBIL rank and commercial credit report for faster and better access to financials. MSME must have a watch on their commercial credit report to maintain their credit health.

Lets’ see what has been mentioned in the commercial credit report and what is the commercial credit report.

A CIBIL commercial credit report is a record of your company’s credit history. The past payment behavior of a company is a strong indication of its future behavior. It is therefore important to understand that the commercial credit report is heavily relied on by loan providers to evaluate and approve loan applications.

 A typical commercial credit report comprises the following information:

1.     Background Information – The report usually begins by stating the background information of the business, like subsidiary and parent companies, years of operation, ownership, and more.

2.     CIBIL Rank – The report then mentions the CIBIL rank of the company, ranging from 1-10.

3.     Financial Information – The report includes additional financial details that determine the adequate credit levels that lenders can allow you to borrow.

4.     Financial History – The report also covers a brief of financial history, such as collections, repayments, revenue generation, etc.

The major parameters that are used to calculate the CIBIL Rank are

1. Past Re–Payment Behavior
2. Credit Utilization

How to enhance CIBIL Rank or CIBIL MSME Rank?

To improve both of these aspects, you would first have to comprehend the factors that can impact your rank and CCR. Below are some points that can help you enhance the overall ranking of your company:

• The loan taken by you should be in the name of your company. However, make sure that you don’t default any payment.
• Pay EMIs of your credit card’s outstanding debt on time.
• Stay cautious of every transaction going from your or the company’s card so that the mistakes, if arising, could be rectified on time.
• Don’t exhaust your credit limit and take a loan only when you can pay back.
• Taking long-term debts and paying on time can reflect positively on your rank.
• Always make sure there are no overdue or delinquencies in your commercial credit report.
• The good rank reflects a healthy profile of MSMEs. So, maintain healthy credit behavior, maintain a disciplined approach in repayment and loan taking pattern.

Apart from CIBIL, there are other credit bureaus Equifax, Experian and CRIF High Mark that also provide detailed credit reports to the companies, just like they do for individual members. While this is a generic report format, it may differ from one credit information company to another. However, the report generated by all bureaus is based on the information procured from banks and is as reliable as the CIBIL CCR.

In short, faster and easy financial access is necessary fuel to grow MSME. It is a wiser approach to monitor, and maintain healthy credit to be always loan ready. It is always significant being a MSME owner, you always check your individual credit reports and your commercial credit report to ensure accurate and up-to-date information.