A good rating gives your business credibility | SupportBiz

Managing Growth

A good rating gives your business credibility

For SMEs, a rating by a reputed credit rating agency is an excellent step towards gaining credibility. It can assist them in getting funds from banks and also reduces their interest rates. Many Indian banks provide interest rate concessions starting from 0.25- 1.25 percent for rated SMEs.

A good rating instills confidence in the company and gives credibility to the business among customers and investors. Not only does it bring transparency to the way the business is run, but it also acts as a report card for internal assessment. It helps SMEs keep tabs on themselves. As the rating is valid for a year and should be renewed, it helps businesses to stay alert to changing regulations and economic requirements.

There is a specific subsidy support offered by the Ministry of Micro Small and Medium Enterprises, Government of India (MSME) through National Small Industries Corporation (NSIC) for the first year. Under this scheme, 75 percent of the rating fee paid to the designated rating agency is subsidized by NSIC, subject to a ceiling of Rs. 25,000 for entities with a turnover of up to Rs. 50 lakh; Rs. 30,000 for entities with a turnover between Rs. 50 lakh and Rs. 2 crore; and Rs. 40,000 for entities with a turnover exceeding Rs. 2 crore. This subsidy is available for the first year only. For renewal, the SME has to pay the fee to the rating agency.

Some of the rating agencies are ICRA, Crisil, Care, Fitch, SMERA and ONICRA. CRISIL is the largest credit rating agency in India, with a market share greater than 60 percent. It is a full service rating agency offering its services in manufacturing; services; the financial sector; and SME sectors. SMERA is the rating agency exclusively established for rating SMEs.

Rating agencies not only study audit reports and CA certification but also use alternate sources of information, including the firm’s bankers, suppliers and customers. They also visit the company premises to check the infrastructure and employee strength. Rating agencies give high quality analysis and independent opinions on SMEs and provide an objective third party analysis about the SME’s financial and performance capabilities. Rating agencies benchmark the enterprise’s performance within the industry and assess a firm's financial viability and capability to honour business obligations. They provide an insight into the SME’s sales, operational and financial composition. They usually have eight grades, ranging from ‘SME 1-8’ – ‘1’ denoting the highest rating and ‘8’ the lowest.

Promoters and entrepreneurs of SMEs can use the evaluations of the credit rating agencies to examine their own strengths and weaknesses and strengthen their operations.