Understanding CIBIL MSME Rank (CMR) and Its Impact on Business Credit
What Is CIBIL MSME Rank?
CIBIL MSME Rank CMR) is specially designed by TransUnion CIBIL to evaluate the creditworthiness of commercial entities. Just like an individual customer’s creditworthiness is evaluated using a CIBIL Score, similarly, a company’s creditworthiness is evaluated using the CIBIL Rank.
Here, the CIBIL MSME Rank CMR) ranges between 1 to 10. In the case of an individual CIBIL Score, the score ranges from 300 to 900. The better the score, the higher it is. However, in the case of CIBIL MSME Rank, it works in the opposite way. The lower the rank, the better it is.
Rank 1 is the best rank. If a company’s rank is between 1 to 4, any popular bank is willing to provide loans to that company. If the rank is 5, some banks may still provide loans. However, if the rank is 6 or 7, good and popular banks usually do not want to give loans to such companies. In that case, loans may be available from non-banking finance companies, where the rate of interest is very high. If the rank is worse than that, there is almost no possibility of getting a loan.
Why a Company’s MSME Rank Becomes Poor
Repayment Track
The most important factor is the repayment track. If a company’s loan repayment history is poor and there are late payments, the rank gets badly affected. Even a single late payment can show an SM status, and because of that, the rank can deteriorate.
Liquidity Risk
Even if a company is making payments on time, if its credit line is fully exhausted, the CIBIL Rank can still fall.
Firmographics
It defines the company size, revenue growth trends, credit exposure, and the vintage of its credit relationship with lenders. If a company has maintained loans for a longer period, it also creates a positive impact on the company’s CIBIL Rank.
Credit Portfolio
If a company has taken different types of loans, there is a higher probability that its rank will be good. For example, one company has taken only an unsecured business loan, whereas another company has taken an unsecured business loan, uses a cash credit limit, and has also taken a secured term loan. In such cases, the company with diversified loan types has a higher chance of having a better CIBIL Rank.
Possible Ways to Improve CMR Rating
How to Improve CIBIL Rank
Among the many customers who come to us, in most cases, when we check their reports, we find data-mixing related errors. Sometimes customers have already made the payment, but the loan still shows active status or late payment entries. Such types of errors are common. First, rectify these errors in the CIBIL report. Once rectification is done, the rank improves quickly.
Pay Off Your Pending Dues
Sometimes a financial crisis occurs in business. During such times, some businessmen think of postponing loan payments and paying future installments first. Do not do this. If you delay loan repayments, you will face serious problems in the future. You may not get loans later. Not only this, but when you go for renewal of your cash credit facility next year, renewal may also get rejected due to a poor CIBIL MSME Rank CMR).
Use Auto-Debit or Standing Instructions
Manual payments can be difficult. A businessman is usually very busy, and if interest servicing is not done on time, the CIBIL Rank can get affected due to late payments.
Maintain a Healthy Liquidity Profile
If you have working capital or a credit limit, try to utilize only up to 75%. We have seen many customers whose limits remain exhausted most of the time. For example, if a company is given a limit of ₹10 lakh, they constantly utilize ₹9.5 lakh. Due to business expenditures at different places, sometimes transactions even cross the limit. Even if payments are made on time, the CIBIL Rank can still get affected. Therefore, keep utilization within 75%. If it exceeds, immediately make payments and reduce the outstanding balance.
Diversify Credit Portfolio
Take different types of loans. For example, one customer has taken only unsecured business loans, while another customer has taken a cash credit limit along with secured term loans. Compared to the first customer, the second company generally has a much better CIBIL Rank.
Things to Be Avoided to Maintain a Good CMR Rating in CIBIL
1. Never Settle Your Existing Credit Line
If your business is going through a crisis and your loan has become an NPA due to late payments, the bank may offer you a settlement by allowing you to close the loan at a discounted amount. Never opt for settlement. If you settle, you will not get loans in the future, and your CMR Rating will be permanently damaged.
2. Regularly Monitor Loans Where You Are a Guarantor
Regularly monitor your loans. Especially if you have given a guarantee to another company, even if your own company is making payments on time, default by the guaranteed company can negatively impact your CMR Rating.
3. Optimize Hard Credit Enquiries
If you make enquiries with many banks at the same time for loans, your CMR Rating can get affected. Sometimes businessmen give their case to brokers. Brokers apply for loans simultaneously with multiple banks, which leads to excessive enquiries. Too many enquiries result in a poor CMR Rating.
It is always best to check your CMR Rating before applying for a loan. You can check your CMR Rating by visiting the official CIBIL website. It is not available for free, and charges need to be paid.