Entrepreneur? Develop healthy credit report to access loans

Harshala ChandorkarCIBILIn an ambitious drive to fund small-scale entrepreneurs and create jobs, the government has set banks a target of giving loans amounting to Rs.1.22 trillion under the Prime Minister’s Mudra Yojana by the end of this fiscal year. A very progressive development for development of entrepreneurship and industrial growth in the country.Lack of access to finance- which consistently ranks as one of the most important obstacles to doing business, according to World Bank surveys of firms in more than 100 economies. With the Prime Minister Mudra Yojana entrepreneurs and SMEs will now be able to access finance with ease. However in order to drive their access to finance entrepreneurs must ensure that they main a healthy Credit Report- their own as well as that of their company. Banks and credit institutions check an entrepreneurs personal as well as company credit report before deciding on the loan application.Here are a few tips for entrepreneurs for building a healthy company credit report and using it as a reputational collateral for accessing finance:Tip 1: Understand your business creditworthinessIt is important for the businesses to understand the factors that impact their creditworthiness and work towards improving their eligibility for financing by building vital reputational collateral in the form of the Company Credit Reports. A Company Credit Report (CCR) is a month-on-month record of a company’s debt related exposure and payments. The CCR captures cash credit, overdraft facilities, loans of all maturities, bank guarantees, letters of credit, packing credit, deferred payment obligations, forward contracts and any other debt exposure that a company has incurred. CCRs are widely used by lenders like banks and non-banking financial institutions in order to evaluate the ability of companies to bear additional debt. Tip 2: Pay and track your business loans regularlyAn irregular or bad credit history may negatively impact the chances of availing any future loans for expanding your business. It is therefore imperative to regularly repay installments on all your business loan obligations and also track the progress on them. Tip 3: Keep a tab on the credit history of partners/ proprietorsCommercial lenders also check the credit reports of partners and proprietors before lending to partnership and proprietor entities. It is therefore imperative to keep a tab on your personal credit report and that of your partners and proprietors before applying for a loan. Tip 4: Be vigilant on the creditworthiness of entities for which you have been a guarantor The details of the loan guarantor appear in the company’s CCR. It is important to therefore be aware of the repayments and creditworthiness of the company for which you or your company have stood as a loan guarantor as it has a significant impact on your own creditworthiness and reputation. Tip 5: Access your company’s CCR before applying for business loansOn accessing the CCR, business owners and managers can get a precise view of where the company stands in the financial life cycle and identify critical areas that need improvement to further enhance its financial standing. Given the widespread use of the CCR by lenders, business entities can now purchase their CCR from CIBIL and view the information that a lender will review before approving their loan application. Not only does this help a business entity increase the chances of their loan approval – by better understanding where their company stands in the financial life cycle – but also provides an opportunity to detect and correct any discrepancies that may be present in the CCR.Tip 6: Use your company’s creditworthiness as reputational collateral The CCR may also serve as a reputational tool for building business collaborations and partnerships. Your CCR can be used as a testimonial to expand your business relationships. You can provide your company’s credit report to potential business partners as confirmation of your company’s financial strength. This increased financial credibility could lead to your being able to secure better trade credit terms while doing business.