Ratings crucial for SMEs growth


Aditya Sabharwal

one of the biggest impediments that SMEs face is access to timely capital/financing. SMEs have often been cited as the back bone of a country’s economic development hence their growth is paramount to any economy.

Access to capital thus becomes a crucial aspect for SMEs wanting to expand/do business. One element that could certainly augur well for a SME seeking to raise capital is getting itself rated by a rating agency.

SME Rating indicates the relative level of creditworthiness of an SME entity, adjudged in relation to other SMEs. It is a one-time assessment of credit risk of the rated entity in comparison with the other SMEs.

‘It is like your company’s financial CV/Resume’ said Mr.Saikat Roy, Director & Head-SME, CARE Ratings speaking to Vizag Industrial Scan. He says that as one does a back ground check to know if everything is good and credible similarly credit rating agencies do their background check and due diligence in assigning a credit rating to a particular organization.

There are many verticals under the SME rating such as bank loan ratings, due diligence, channel partner evaluation etc.

Mr Saikat informs that most of the times for loans above Rs 10 crores banks require a credit rating. This is where a bank loan rating (BLR) is of great help to a SME. ‘A Balance sheet alone isn’t enough to decide if a SME is loan worthy’ says the Head-SME, CARE ratings. BLRs are thus used by banks to determine risk weights for their exposures it is also a beneficial way to negotiate better rates with the banks too.

Explaining some of the parameters of rating, Mr Saikat talks on the 5 pillars that are looked at while rating a SME. Those 5 pillars he describes as follows:

Financial risk: This risk looks into the past financials of the company, projected financials and quality of accounts.

Management risk: This risk looks into the management of the company, team, the people behind the venture etc.

Business risk: This risk looks into how easily are you able to get credit in the market, availability of raw material, utilities, cost structure, product/business mix etc.

Industry risk: This risk looks into what type of industry you are into, industry competition, regulatory environment, demand-supply gap etc.

Project risk: Looks at what type of project it is, size of the project as compared to existing operational capital employed/net worth, legal/political risk etc.

Weightage on the above parameters Mr Saikat informs varies from case to case and industry to industry.

Rating for the Real Estate Sector

Real Estate Rating: This rating as the name suggest is for builders/developers. A home buyer when looking at investing in a property normally evaluates on: developer quality, his track record in the industry, timeliness of project completion, construction quality etc. Therefore the CARE REAL ESTATE STAR RATING delves upon these critical aspects and helps buyers/investors make informed decisions.

Mr Roy informed that CARE ratings on an average rates about 3500-4000 SMEs a year.

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