Credit Ratings for SMEs

Credit ratings specially designed for SMEs, factoring in their exclusive characteristics related to size and style of functioning, helps in bridging the information gap for well deserving SME units with their lenders. It also helps SMEs to encourage ties with new trade partners based on the strength of the ratings obtained. It anticipates the need for disclosing information that is confidential in nature while prospecting business.

For a successful and meaning rating exercise, cooperation between agency and the rated SME is very essential. While SMEs would provide the information more in direct association. The analysts undertaking the rating of SMEs should be able to understand the constraints obtaining in the SME unit, like scattered information without necessary skills in articulating the relevant information and knowledge. The analysts should have an SME assessment specialization and his focus should be SME ratings, only then he would be able to carry out a proper peer comparison.

A good rating from an external expert credit rating agencies like ICRA, ONICRA, SMERA etc emphasizes the best business practices adopted by an SME unit and helps in benchmarking its strength and reliability of performance. These agencies are unbiased and aims to bridge the gap between the needy SMEs to willing yet hesitant lenders by evaluating financial parameters as also qualitative factors like management profile, corporate governance, industry risk and similar other non-financial parameters that have bearing on the creditworthiness of units.

Firm information considered would include industry scenario, business financials, credit history, management expertise, future plans and business prospects. Mainly the rating process involves plant / site visits and interactions with the management of entities. Further, based on the quality of disclosures adopted by the entity, the rating highlights the intrinsic strength of the entity while giving due respect to confidentiality requirements of the rated SMEs. This provides a strong element of comfort to the SME client that his rating has been based on proper and evaluation of his business and also to the lending agency and anyone basing their credit or trade decisions.