As per the revised norms, micro, small, and medium enterprises (MSMEs) are categorized as below:
|Investments in plant and machinery and equipment||Turnover|
|Micro enterprises||Less than INR 1 crore||Up to INR 5 crores|
|Small enterprises||Less than INR 10 crores||Up to INR 50 crores|
|Medium enterprises||Less than INR 50 crores||Up to INR 250 crores|
With more than 6.3 registered MSMEs, the sector is crucial to India’s growth. These companies contribute about 37% to the Gross Domestic Product (GDP) and hire millions of people across the urban and rural areas.
Several financial institutions offer loans to small and medium enterprises (SMEs). Often, an important criterion to qualify for SME loans is the credit score. The Credit Information Bureau India Limited (CIBIL) maintains, records, and releases the credit score based on your history.
Importance of credit score
Every lender assessesyour and your business’ credit before approving your loan application. A higher score increases the possibility of approval and is a critical SME loan eligibility norm. It assures the lender of receiving timely payment of the equated monthly installment (EMI) and reduces the lending risks.
Additionally, a good credit score may help you receive beneficial terms and conditions, and you can get a higher loan amount. Often, lenders offer competitive SME loan interest rates and a better loan value if you have an impressive score.
Tips to maintain a favorable credit score
- Make timely payments on all your debts
All lenders report your payment history to CIBIL, which plays an important role in determining your score. Pay all your EMIs on time without any delays or defaults to ensure your credit is not hurt.
- Be cautious while applying for loans
Availing of loans is important for the growth of your business; however, you should be careful while applying for them. Often, you may rely on alternate sources to raise funds, which require more security, and you end up paying a higher rate of interest. This can lead to financial distress and unmanageable debt. To avoid this situation, you must take loans only when required so that there is no negative impact on your SME loan CIBIL score due to a default or delay.
- Check your score regularly
It is advisable to review your credit score periodically to ensure that there are no errors. If you find any inaccuracies, you can rectify these immediately so that there is no implication on your credibility.
Unleash the potential of your business and take it to the next level. Check the SME loan solutions and other criteria on Mahindra Finance’s website to apply now.