Small and medium-sized enterprises (SMEs) are crucial in driving economic growth, fostering innovation, and creating employment opportunities. However, one of the most common challenges they face is limited access to finance. In addition to the initial investment made by the owners, proprietors, or partners, SMEs often require external financial support in the form of loans to sustain and grow their businesses.
These loans are typically needed at different stages of the business lifecycle. They are crucial when starting a new enterprise, upgrading infrastructure, expanding operations, or investing in advanced technologies to stay competitive. Financial support at these critical junctures plays a key role in establishing and managing a business, particularly during the early phases when the enterprise has not yet started generating profits or attracting substantial investment. Before a business becomes self-sustaining through its revenues, external funding acts as a lifeline that allows it to operate and grow.
Just as individuals are evaluated for creditworthiness through a credit score or credit report, businesses also have their credit profiles that lenders review before extending credit. These business credit reports help financial institutions assess the risk of lending to companies. In India, four major credit bureaus, each operate a separate commercial bureau.
These bureaus maintain detailed credit reports for business entities, recording their credit history and repayment behaviour.
Types of credit facilities for businesses
Businesses avail various types of credit facilities depending on their needs. These broadly fall into two categories:
- Working capital facilities: These include overdrafts (OD) and cash credit (CC), which are typically used for managing day-to-day business operations, including inventory purchases, salary payments, and utility expenses.
- Term loans: These may include long-term or short-term loans, such as loans against property, vehicle loans, or general business loans for capital expenditure, expansion, or machinery purchases.
What information is included in a company credit report?
To understand and manage their credit health, business owners must become familiar with the components of a company credit report or commercial credit report. This report is essentially a detailed profile of the borrowing entity and contains the following key information:
- Legal constitution: Whether the business is a sole proprietorship, partnership, private limited company, or any other registered entity.
- Business activity: Categorised as per regulatory norms, this includes sectors such as manufacturing, professional services, retail and wholesale trade, agriculture, vehicle services, and other allied services.
- GST number and registered address: These details help uniquely identify the business entity and establish its legitimacy and compliance status.
- Credit facilities availed: The report lists all loans and credit lines availed by the entity, grouped under categories such as working capital, term loans, and non-fund-based facilities like bank guarantees or letters of credit.
- Payment behaviour: This section captures the entity’s repayment history, highlighting any delays or defaults in repaying the sanctioned and utilised amounts.
- Demographic details: Information about the business’s key personnel, such as directors, partners, or proprietors, is also included, adding a layer of transparency for lenders.
All these data points, particularly the credit facility and repayment history, are analysed by the credit bureaus to generate a commercial credit score. In the case of SMEs, the company credit score is referred to as the MSME Rank. Unlike, individual credit scores, where a higher score indicates better creditworthiness, the MSME Rank works in reverse, a lower rank denotes lower credit risk. Ranks from 1 to 3 are considered very low risk, indicating that the business has a strong repayment track record and is likely to honour its future financial obligations.
For businesses, especially those with an annual turnover of less than ₹50 crore, obtaining timely financial support is critical for smooth operations and long-term sustainability. Therefore, such entities need to maintain healthy credit behaviour. This includes managing all aspects of their credit history, repaying loans on time, keeping debt levels manageable, and avoiding defaults.
Additionally, business owners should regularly monitor their commercial or company credit reports. By staying informed about changes in their credit profile and history, businesses can quickly identify and address any discrepancies or emerging issues. This proactive approach helps build and maintain a robust credit history, which is essential for accessing favourable loan terms and financial products in the future.
Being aware, disciplined, and consistent in monitoring and managing credit-related behaviour ensures that the enterprise remains financially healthy and creditworthy, ultimately enabling the business to grow, attract investment, and withstand market challenges.
Disclaimer: The information provided in this article is for informational purposes only and does not constitute financial, legal, or professional advice. While every effort has been made to ensure accuracy, readers should verify details independently and consult relevant professionals before making financial decisions. The views expressed are based on current industry trends and regulatory frameworks, which may change over time. Neither the author nor the publisher is responsible for any decisions based on this content.
Ramkumar Gunasekaran, Director Sales, CRIF High Mark