Obtaining timely and adequate credit is imperative for MSMEs to grow and expand. Here are 11 ways you can improve the creditworthiness of your MSME.
1. Maintain your company’s correct legal identity and contact details across all statutory databases.
2. Ensure that bank and NBFC loans are serviced on time and credit card payments are made before the due date to help maintain a high credit score with various credit bureaus. As the owner, keep your personal credit history clean as well; lenders monitor the credit scores of both the MSME and its owner/s.
3. Always pay employee dues, including salaries and statutory payments such as Provident Fund on time.
4. Do not delay relevant filings and disclosures to regulatory authorities such as the Registrar of Companies (Ministry Of Corporate Affairs).
5. Stay up-to-date with tax payments and return filings. File GST returns on time, as banks and NBFCs check GST filings before approving MSME loans.
6. Make timely trade payments to avoid unnecessary litigation. Having cases filed against you for issues such as cheque bouncing u/s 138 of the Negotiable Instruments Act, raises red flags and causes your credit score to drop.
7. Optimise working capital management. Avoid large Accounts Receivable or Accounts Payable that are beyond industry norms. Inventory should be consistent with the size of your business – a bloated inventory inflates your working capital requirement.
8. Ensure that key ratios (Debt-Equity, Interest Coverage Ratio, Current Ratio, and Quick Ratio) are in line with industry norms. The firm should be appropriately capitalised with adequate equity from the owner/s.
9. Adopt digital channels for payments to ensure transparency of your transactions, since modern credit risk models use near-real-time data from a variety of digital payment platforms to assess risk. It can also cut your transaction costs significantly.
10. Make sure that the owner/s and directors of your MSME are compliant with statutory requirements and have a clean track record. While evaluating creditworthiness, lenders conduct background checks on owners to validate identity (KYC) and check criminal records, political linkages (PEP), and involvement in Money Laundering (AML). Any negative data about the owner/s will adversely impact the MSME’s credit score.
11. Have a strong social media presence and divulge adequate information in a timely manner. If your firm has secured quality accreditations or won awards, highlight these. Address customer or employee complaints on any social media platform quickly and professionally.