How TransUnion CIBIL Credit Ratings Help Small Businesses Get Easy Loans

Financial institutions such as banks and non-bank financial corporations (NBFCs) take risks when lending to individuals and small businesses. This risk is increased if the loan is free of collateral. These lenders require assurance that the loan amount will be repaid on time.

Small Indian businesses and MSMEs often do not have collateral or any other means of assuring lenders that the loan will be repaid on time.

To reduce the risk of non-payment, banks rely on credit information and reports generated by independent rating agencies, or credit reporting companies.

These are specialized financial institutions that maintain a database of credit and financial information on individuals and businesses. They generate Credit Information Reports (CIR) that lenders can use to review the credit history of loan applicants and decide whether to approve or deny a loan.

Launched in 2000, one of the most popular credit bureaus in India is CIBIL TransUnion, formerly known as CIBIL (Credit Information Bureau India Limited). In 2017, the US consumer credit bureau TransUnion acquired a 92.1% stake in CIBIL, after which it became known by its current name.

Today, TransUnion CIBIL claims to have credit data of more than 2,400 members, including all major banks, financial institutions, NBFCs and housing finance companies, and maintains credit records of over 550 million individuals and businesses.

Sujata Ahlawat, Vice President and Head of Direct Consumer Interaction, TransUnion CIBIL

In an exclusive interaction with SMBShistory, Sujata Ahlawat, Vice President and Head of Direct Consumer Interaction, TransUnion CIBIL, explains why small businesses and MSMEs need a credit score and how TransUnion CIBIL meets that need.

Edited excerpts from the interview:

SMBStory: How has the borrowing capacity of MSMEs and small businesses changed?

Sujata Ahlawat: Currently, the MSME sector contributes around 29% of India’s GDP and this contribution will increase in the future. However, MSMEs continue to face challenges, with access to affordable credit being one of the most crucial.

Borrowing difficulties may be due in part to the lack of knowledge of MSMEs about their loan eligibility criteria as well as the processes and documents required for business loans. Lenders are also a bit more cautious, as the MSME segment has traditionally been viewed as a riskier lending option compared to other options available.

SMBS: What is the role of TransUnion CIBIL in meeting these challenges?

HER : TransUnion CIBIL’s Business credit report (CCR) and CIBIL classification play a role in facilitating MSMEs’ access to credit and loans. The CIBIL ranking is an indication of a company’s creditworthiness, based on its credit history and payment methods. It is on a scale of one to ten and is aimed at MSMEs looking to take out a business loan and expand their businesses.

The CIBIL ranking is used by lenders to assess the credit health of a business when taking out a business loan. This makes it a critical influencing factor when lenders assess a business’s loan eligibility and take out a business loan.

Through the DTC vertical, we help consumers understand and assess their creditworthiness based on CIBIL score —A three-digit digital summary of an individual’s credit report, ranging from 300 to 900. It is also used by lenders to assess the applicant’s repayment capacity before approving a loan.

SMBS: How important is the CIBIL ranking? What are the advantages ?

HER : While the CIBIL ranking may be based on credit history, it is also an indication of the future repayment capacity of the business, and lenders use the CIBIL ranking to make an informed decision when assessing a business. business loan application. A high CIBIL ranking (from one to four) is viewed positively by lenders and high ranking MSMEs may benefit from preferential terms from some lenders.

We have seen lenders like Baroda Bank and Oriental Bank of Commerce offering preferential interest rates based on the CIBIL ranking. A high ranking also helps to reduce the turnaround time for loan approvals, which is very important as access to capital at the right time is a concern for many MSMEs.

SMBS: How can MSMEs ensure they have a high CIBIL ranking?

HER : MSMEs should strive to repay their creditors on time and / or during the credit period in order to avoid defaults or late payments. These timely payments will be reported to CIBIL and will help establish a higher CIBIL ranking. This will be the key the next time they need to apply for credit.

They should also remember to only take out the loan amount they need. It helps them stay out of the debt trap. And the most important point is that they need to regularly monitor their credit health so that they are always ready to borrow and have access to credit when they need it.



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