With MSME introduced in 2006 in India, it has become a pillar of the Indian economy, contributing a significant share of over 40 percent in its GDP and employment. MSMEs are vital in India and are also crucial for the global economy, where they have made substantial contributions over the decades.
While MSMEs are still investigating how loans can help unleash their full potential, they may require quick and carefully guided access to funds to support their enterprises to reach their full potential.
MSMEs stands for “micro, small, or medium enterprises.” Still, these smaller players are progressively ceding ground to larger companies because of the advancement in technology, and its adoption, which will help them scale up and stay competitive. The Indian government plays a significant role in its quickly growing status by assisting them to get their businesses started with inclusive initiatives and offerings.
See What Statistics Says….
According to the Union Budget 2021 – 22, Budget Allocation for FY 2021-22 for the MSME more than doubled to Rs.15700 crore vis a vis Rs.7572 crore in 2020-21.
A recent report published by Reserve Bank of India also suggested that the MSME sector can get INR. 5,000 crore stressed asset fund as better access to credit.
With these initiatives offered by the Indian government, MSMEs can focus on forging a bigger and better identity for themselves. MSMEs need faster, cheaper, and carefully guided access to funds, especially when they are still learning how loans and credits can help them and the enterprises unleash their full potential.
Source: Impact-of-Budget-2021-22-on-MSME-Sector
IMPORTANCE OF CIBIL RANK FOR THE MSMES BUSINESSES
In the last few years, the CIBIL score has helped MSMEs gain a better insight on loans and loan options that have helped them achieve faster and cheaper access to business loans. How? The CIBIL Rank allows us to understand the company’s future repayment capability, and it is a numeric summary of a company’s credit report and its past repayment trends.
This score helps lenders decide whether to approve their business loan applications or not. It also helps them decide how much loan they should sanction. Once MSMEs get a better hold of how the formal credit landscape works, they can be better prepared to boost their loan-eligibility criteria and thus can leverage business loan opportunities when they require it the most.
Below mentioned are three critical points that MSMEs should be aware of to build a high CIBIL Rank and become loan-readiness:
1. PAYING LENDERS TIMELY, EVERY SINGLE TIME
The relationship between a lender and a borrower is essential, as lenders play a vital role in reporting a borrowing company’s repayment patterns back to CIBIL.
It is also a critical factor that helps determine the CIBIL rank, which is why MSMEs should focus on paying back their lenders on time and within the credit period and avoid defaulted or late payments—making all the costs timely will contribute to building a good and higher CIBIL score.
So, next time they apply for a loan, a high CIBIL score will help them in their loan approval process.
2. Apply Vigilantly
While planning their growth strategies, MSMEs should look for a formal lending landscape while applying for credit. One should not resort to alternative lending sources to get faster and easier access to funds.
These alternative funding sources may demand various collaterals as a guarantee and cause MSMEs to put their valuables (even property) on the mortgage. Such types of loans usually attract higher rates of interest.
Thus, MSMEs should look for lenders with a formal credit landscape to get better offers and avoid the debt trap. Most importantly, they should choose their lenders depending on their company’s credit history and repayment capability. Also, to avoid getting into a debt trap, MSMEs should ensure applying for only as much credit as they truly need.
3. Examine the CIBIL Rank and Company Credit Report (CCR) regularly
A good/higher CIBIL score and a lower CIBIL Rank of an MSME represent its financial well-being and repayment capability. So, it’s crucial to constantly monitor the CIBIL rank and CCR of the company, which will, in turn, help them monitor their credit transactions and identify any errors. The lower the company’s rank is, the better the chances of their loan approval.
Monitoring the CIBIL rank of the company is a crucial step, as some banks offer MSMEs business loans at a better, discounted rate of interest based on their CIBIL rank. Also, regular monitoring can keep them loan-ready and help leverage attractive offers when the opportunities arise.
Final Thoughts
It’s never too late to strengthen your credit rank and unleash your full potential. Starting today, MSMEs should focus on actively boosting their business’ loan-eligibility criteria and credit health by achieving a high CIBIL Rank- which is also a critical factor in determining your credit access in the future.
