Financing is a major concern for a small enterprise than the big ones for getting success. Lack of accessibility to financing is constantly observed by SMEs (small-to-medium enterprises). SME is a comfortable term for segmenting businesses and other organizations that are in between somewhere the SOHO( small office home office)size and the large enterprise.  SMEs felt that financial accessibility was the barrier to business growth.

Even support from commercial banks and financial institutes is often considered to be costly and full of risk. Even SMEs are broadly unattended in the case of basic financial services. In such crucial conditions of limited financing, SME owners suffer in making investments to enhance productivity and the competitive environment in the market. It creates problems in developing new market conditions by hiring talents to future hike up productivity.

SMEs contribute a large part to India’s GDP by employing millions. It is an important section of society to push the economy to a certain profitable level. Even, SMEs can lead in against problems while trying to find funding. It can have a diverse effect on growth and development and impact the economy. Credit rating can be a big support to SMEs in getting a business loan for their growth and expansion.

How does credit rating become important for SMEs?

SME Credit Rating is significant to fetch financing availability. Here the agencies like SMERA, etc. can help to access the firm’s financial ability to find the risk factor associated with it with wholesome health. In total SME grading provides entrepreneurs and investors with information related to these organizations. Let’s have a look at why credit rating is important via the benefits associated with it:

  • Builds credibility

Credit rating plays an important role but if it is by a trustworthy institute then it becomes a golden chance to explore the future growth of the business. Just like CRISIL rating for SMEs provides lenders, correct and crystal clear whole readability into a company’s financial health.

After that, only the lender thinks about the loan payment based on the repayment condition of the company. Lenders feel secure with the SMEs rating for giving out loans as per the information embraced by it.

  • Attractive Interest rates

Credit rating for SMEs provides the risk factors associated with the loan appraisal that can help the organizations to rethink the possibilities ahead. The interest rates can be in favor as the lower the risk factor, the more chances of offering the best interest rates by the lenders to the borrowers. Hence, the borrower’s organization can have lower rates of interest with a supportive credit rating. 

  •  Support of negotiating terms with suppliers

Credit rating is beneficial for the company that can help it to negotiate for supplies of mandatory raw materials in need on credits.   A good SME credit rating supports the company to negotiate on its ground with suppliers. The report generated by the credit rating agency as the third party can be a support system for the company to prove its payment capacity to the suppliers.

  • Reference documents verification via a credit report

The enterprise’s operation and financial status are deeply checked before the production of the credit report. The risk and other strong points are also included in the report. The report made the gap filled for extra checking of the background of the borrowers before the approval of the business loan. Even the time cannot be exceeded for the loan appraisal as the required documents are present on spot via the report.

  • Worthy self-evaluation

As all the positive and negative points are stored in the credit report, lenders can use these to fix problems financially and trigger profits by channelizing funds in the correct direction. Hence, a credit rating plays a great role in each stage of the strategic plan with the other details.

What is the role of Credit rating agencies for SMEs?

As we know now that SMEs are an essential part of the national economy, their diversification made it difficult to judge them. But the set standards of the rating system can set the benchmark to check the entity’s parameters and validity claims. This can support the lenders and bankers with the required important details to finance those SMEs. Although the conventional credit rating checks the financial aspects by comparing to the large companies it cannot be the correct system of credibility for SMEs.

There are SME Credit rating agencies like SMERA, which can help to get the validity check of enterprises by the stepwise actions.

Role of   credit rating agencies like SMERA:

  • It provides an attentive assessment of business and financial risks associated with it.
  • It measures business credibility on a set of benchmarks that can be specific to the SME.
  • Helps to assess the organizational parameters such as finance, operations, technology, etc.

The process of credit rating (360⁰ rating methodology)

The credit rating methodology holds the deep check of multiple risk factors. The deep research of background with complete details as documents of the respective enterprise happens in this. At last, the perfect beneficial report is provided to the lenders, buyers, bankers, and other SMEs.

Execution Process

To ensure the completion of the credit rating has been done without leaving any aspect of the enterprise checked, counted, and measured correctly, six steps execution process is used.

The execution Steps are:

  1. Submission of Information and documents
  2. Site Inspection and management discussion
  3. Detailed analysis by rating analyst
  4. Assignment of Rating by Rating Committee
  5. Communication of rating to the Rated Entity
  6. Dispersal of Rating

The credit rating scale that is used to rate the enterprise can have digits as 1,2,3,4,5,6,7,8, where 1 indicates the highest and 8 indicates the lowest.


The SME Credit Rating helps to rate the enterprise based on its strength and weak points in a detailed study by the rating agencies. The credit rating helps in the economic growth of the nation ahead with the SMEs.


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