Independent Rating of Business: Benefit for SMEs

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Credit Rating by an independent agency can be taken as an opinion given by that independent agency about the chances or possibility of debt being repaid by the business entity (under rating) in time and in full. Most of Small and Medium Enterprise get their business rated when asked by their Bankers at the time of providing fresh credit or at the time of renewal/enhancement of proposal.

Rating reports are used by borrowers to get easy, timely fund borrowing at a lesser interest cost. Better the rating –easier and cheaper is the fund borrowing. If rating is not good then further borrowing will be difficult and cost of funds would also be high or even loan proposal may also get rejected.

Benefits of Good Independent Credit Rating are as follows:-

  1. Less cost of funds: If the Credit Rating of a business is high then the management has a option to get the funds at a lower rate of interest and to get the rate lowered for already borrowed funds. Bank/ financial institution prefer to lend money to high rated entities, even if rate of interest is low.
  2. More Fund Arrangement Options: If Independent Rating of business is good then more Banks or Financial Institutions are ready to give funds and even for complete takeover of already borrowed funds by way of paying the loan/limit amount to previous Financing Bank. Apart from Banks, Investment Banker, Private Equity, Venture Capitalist etc. are other options as these are also keenly interested to provide funds to Business/ Corporates with good Credit Rating.
  3. Motivation, Confidence & Marketing: A good Credit rating by and independent third party agency gives a boost to entrepreneurs and is also highly motivating. It enhances the confidence of management about their business ideas, style of functioning and enhances their self respect.

A confident entrepreneur in turn uses the good Rating Report as a marketing tool to all parties related to business i.e customers, suppliers, financers, employees, bankers, share holders and general public etc.

In our next article we would provide details of factors affecting Rating Report or the parameters on which the Credit Rating Agency decides Rating and gives its Report.

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