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Importance of Rating

 

Concessional funding: A good rating can help you gain faster and cheaper credit for your venture. The agencies that provide rating for SMEs—Crisil Ratings, SME Rating Agency of India (SMERA), Icra, Credit Analysis & Research (CARE), Onicra, and Fitch—have tie-ups with several banks to offer preferential interest rates based on ratings. For instance, Crisil Ratings has such a working arrangement with 35 banks and financial institutions, while SMERA has entered into such pacts with 29.

According to Crisil Ratings, the interest rate reduction for its clients ranges from 0.5-1.25% and around 35% of the enterprises have reported a reduction in the loan processing time. "In some cases, banks have approached them with funds," says Ramraj Pai, director, Crisil Ratings. SMERA feedback suggests that enterprises enjoy interest rate concessions to the extent of 0.25% to 1%. "In many cases, savings from the reduced borrowing cost exceeds the rating fee," says Parag Patki, CEO, SMERA.

"If a firm gets a good rating, he can even approach other banks to get a better rate bargain than the one provided by his existing banker," says Munhot.

Better business opportunities: The independent risk evaluation of SMEs by an unbiased third party lends credibility to them and opens doors for them while dealing with MNCs and corporates. "You can submit credit rating for tenders and make yourself more credible to get bigger orders. It also provides easier access to other sources of finance such as private equity," says Pai. "Better ratings have helped the SMEs retain customers and suppliers, and negotiate better terms with them," says Patki.


Tools for self-improvement: Another advantage of rating is that the highlighting of strengths and weaknesses acts as a trigger for self-correction. A regular renewal of ratings not only helps improve a firm's performance but also builds confidence within the lender fraternity and trading channel.