November 27, 2024 · 16 mins read
Santosh Kumar
Micro, Small and Medium Enterprises (MSMEs) make a crucial contribution to the local and national economies and account for eradicating unemployment issues and achieving sustainable development goals. MSMEs account for about 90% of businesses but are largely unorganised. Hence, it becomes essential to have a unique scoring system for evaluating the creditworthiness of MSMEs. CIBIL MSME Rank (CMR) is a rating given by CIBIL to evaluate the MSMEs' creditworthiness, considering that the MSME sector is largely unorganised. Let's explore the basics of CMR and find answers to questions like how to check and improve CMR ratings.
Lenders, banks, and financial institutions need a system to evaluate for CMR score check to know the credit risk of the borrowers while approving loans, be it for individuals, businesses, or MSMEs. They rely on the credit score systems of the credit bureaus to understand the credit behaviour of the borrowing entity. CIBIL, one of the major credit bureaus in India, follows a separate credit formula to calculate the creditworthiness of individuals, businesses and MSMEs. CMR is a numerical rating that ranges from 0 to 10, with CMR-1 being the best and CMR-10 being the worst.
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CMR comes with lots of benefits, as listed below.
1. With CMR, the credit risk evaluation is organised, so the loan approval process is unbiased.
2. Lenders can evaluate the risk factors of borrowers and hence can make safe decisions regarding loan approval.
3. With solid proof of the creditworthiness of a business, the loan approval process is less time-consuming.
4. It makes your loan renewal or upgradation process easier.
5. With a good CMR, you can avail of pre-approved loan offers that suit your needs.
6. With a good CMR, lenders may be ready to provide you with higher credit limits, lower interest rates, and better tenure. You can enjoy customized loan terms and conditions if your CMR is excellent and if the lender is satisfied with your payment history and company details.
7. Also, a good CMR score check which is proof of your business's financial health, and a bad CMR is an alarm to take steps to build risk strategies and improve your CMR score.
8. Last but not least, CMR is a foolproof way to showcase your business's financial health while you approach suppliers or vendors for new business deals.
Read More:: Is 776 a Good CIBIL Score?
1: Maintaining a favourable CIBIL MSME Rank (CMR) helps businesses secure loans at better terms and improve financial credibility with lenders and stakeholders:
2: Usually, people tend to forget paying EMI’s on time and paying, it late will definitely affect the CMR rating. Pay all loan EMIs and credit card bills on time to maintain a strong repayment history and avoid negative marks on the CIBIL report
3: Outstanding debt is a major mistake that reduce your rating soon. By clearing dues regularly, as a lower debt burden indicates better financial health and improves the CMR
4: Being careless and not keeping tracking of CMR report, know how to check CMR by monitoring the CIBIL report frequently to check for errors, incorrect transactions, or outdated information that may negatively impact the CMR
5: Getting multiple loans at same time, avoid multiple loan applications within a short period, as excessive credit inquiries may signal financial stress and lower the CMR
6: Not maintaining credit mix, maintain a balanced credit mix by using both secured and unsecured loans instead of relying only on unsecured borrowing
7: Excess credit utilisation, Limit credit utilisation by keeping credit usage below 30% of the total available limit to demonstrate responsible financial management
8: Keeping loan defaults, avoid loan defaults or settlements, as they significantly impact creditworthiness and may result in a higher CMR
CIBIL Company Credit Report plays an important role for businesses, MSMEs and other small entities that want to gain access to credit for running their businesses smoothly. Let us understand the impact of the CCR in the industry.
1: Helps eligible businesses and MSMEs to gain access to credit at low rates
2: Enables lenders to curate pre-approved loan offers for eligible borrowers
3: Allows lenders to reduce the turnaround time at the time of loan approval
4: Good CMR helps lenders manage their credit risk better
5: Rule-based loan renewal/enhancement allows businesses to plan their finances accordingly
6: Helps lenders assess the liquidity risk of a borrower
7: Acts as an early warning system for portfolio monitoring
To know how to improve CMR score to improve your company's CMR, first, you have to identify the faults. So, start the process by checking your Commercial Credit Report (CCR) thoroughly. For this purpose, you can purchase your Company CIBIL from the official site or arrange a copy of the CCR from the bank.
The data mentioned in your CCR should be correct and up-to-date. In case, you find your existing debt is not updated properly by the lender or any kind of unknown loan account overlaps in your company CIBIL report, then immediately rectify them by raising your concern to CIBIL authorities. If your CMR rating is affected by such errors, then after rectification, the rank will improve automatically.
In the case of the CMR rating, a single missed payment can have a significant impact. When you default on your loan accounts, it leads to the reporting of overdue, delayed payments, and the status such as SMA, DBT, LSS, or even more severe negative remarks like "written-off," "suit filed," or "willful default" on your company CIBIL report. These negative remarks damage your CIBIL rank, and their effects can linger for a long time. If you have recently missed a payment on your current credit line, make sure to pay the full amount due immediately and update the payment information in your company CIBIL report accordingly. Once the account gets updated, and that’s how to improve CMR rating online company.
Be punctual with your company's existing obligations. Use a financial calendar or auto-debit options to ensure you never miss the loan due date. Manage your company's expenses and cash flow efficiently to ensure funds are available for repayment.
In most cases, customers complain that their CMR rating is high, even though they are paying their loan interest timely and never overlimit their working capital loan. On investigation, we often find that they are using their CC/OD balance of around 90% or more than that. Mostly, they are not even aware that such a high utilization also impacts their CMR rating.
Typically, when you max out your working capital loan, it reduces the company's liquidity profile and consequently increases the value of CIBIL rank. So, always utilize your working capital loan optimally, less than 75% to maintain a good CMR rating.
A diverse credit portfolio demonstrates a strong and sustainable business, capable enough to handle various types of credit. Build a long and trusted association with your lenders and improve CIBIL MSME Rank accordingly.
Here are some best practices for maintaining a strong CMR Rank:
1: Regularly review the CMR Rank & Company Credit Report (CCR): Check the report regularly to catch and dispute inaccuracies promptly
2: Keep business information up to date: Ensure that the company's profile is accurate in all loan accounts and reflects the present status of the business
3: Use credit responsibly: Avoid multiple enquiries in a short period of time and manage existing credit lines effectively
4: Maintain financial discipline: Regularly monitor cash flow, manage expenses, and plan for financial contingencies
5: Seek professional advice: Consider consulting with financial experts or credit counsellors for tailored guidance.
The CMR is calculated considering several factors that describe the credit behaviour of MSMEs. Here are the main factors.
1. Credit History: The formula for CMR considers the history of loans and other forms of credit taken by your company in the past. With a longer history, you will be considered less risky.
2. Repayment Behaviour: How good and responsible you are at repaying your debts is another important factor that helps the lender understand your creditworthiness and thereby decide on your loan or credit application. This factor considers timely payments of your past credits as a positive aspect, while overdue amounts and time delays in making any payment are negative aspects. Timely full payments have a positive impact on your CMR.
3. Existing Debt: The current borrowed amount plays an important role in the CMR. Higher debts negatively impact the CMR and represent a high risk of default.
4. Type of Business and Industry: The type of your business has an influence on your CMR. Yes, you heard it right. If you are in a business sector where the profit margin is low or has a higher probability of loss, then the probability of the payment default also increases. Hence, businesses with higher chances of risk are considered risky borrowers.
5. Liquidity Profile: Liquidity is a measure of a company's financial health, and hence, it is considered when calculating the CMR for MSMEs. Credit bureaus determine liquidity based on the rate of utilisation of funds.
6. Firmographics: Your company's sector and liquidity affect your CMR, but a few other factors about your business, like location, maturity, and ownership, give an idea about its financial health.
Before we understand how to check and improve CMR ratings, let's understand what different CMRs specify.
CMR 1 - 3: This represents high creditworthiness, as these companies have a good repayment history and no amount due. With a CMR within the 1 and 3 range, you can easily obtain loans at good interest rates.
CMR 4 - 7: This is a moderate score that may result from failed or delayed payments in the past. If your CMR is in this range, it will add more complexity to the loan approval process.
CMR 8 - 10: This CMR range represents very low creditworthiness. Companies in this range have bad credit histories and are on the verge of becoming NPAs (Non-Performing Assets). Hence, lenders will consider you a risky borrower and may reject your loan.
Read More:: What is CMR Rating in CIBIL?
To know how to check CMR rating online free follow the below steps
1. Visit the CIBIL website and click on the "CHECK YOUR CIBIL RANK" button to land on the CIBIL Rank page.
2. The CIBIL Rank page showcases various plans from which you can choose the best plan that suits your needs. There are plans for one month, six months, and one year for regularly monitoring your business's CMR. Each plan comes with various benefits. Pick your best and click the subscription button of the selected plan to land on the registration page.
3. To complete your registration process, enter your company's basic details and upload the required documents along with the payment for your plan.
4. Once registered, the login credentials will be sent to your email.
5. To check your CMR, you can visit the CIBIL website and click the "EXISTING USER" button to land on the login page. You can access your dashboard to verify your CMR and credit report by entering your login details.
Read More:: Reasons For Loan Rejection Despite Good CIBIL Score
Improving your CMR is easy but requires consistent effort. Here are a few steps to improve your CMR. If you have a bad CMR, you must take these steps immediately to improve the rating. Even with a good CMR, your CMR will be affected if you fail to incorporate these efforts into your habits.
1. Make Prompt Payments: How good and responsible you are at repaying your bills and loans has a huge impact on your CMR and becomes a deciding factor for lenders to decide on whether or not to trust you on repaying the loan. Hence, make sure you always pay your loan due and bills to your suppliers and vendors on time. Also, full payments are better than partial payments, so paying off the bills completely and on time is advisable. Note that single penny default and single-day delay affect your CMR.
2: Plan on How to Pay off Debts and Improve CMR Rating: No wonder the more outstanding debts will make you a high-risk borrower in the eyes of the lenders. The more the debt amount is, the more negative your CMR will be. Also, more number of loans is a sign that you are in a financial crisis or bad at handling finances. Think of the possible ways on how to pay off debts and improve CMR rating? Make sure you have the least outstanding debts and a minimal number of loans.
3. Maintain a Longer Credit History: A longer credit history with a good record of prompt payments is a positive factor for CMR and builds the confidence level of lenders. Also, a longer credit history represents the stability of your business. So, start your credit journey as early as possible.
4. Understand the Importance of Credit Utilization Ratio in CMR Rating: The ratio represents how much you rely on credits for your financial needs. The more the credit utilisation ratio is, the worse your CMR will be. A high ratio signals that you are overly dependent on credit, so lenders will have a hard time believing your creditworthiness. That doesn’t mean that you have to keep your ratio zero, which will shatter the purpose of owning a credit card. A 30% ratio is considered a good level of credit usage.
5. Avoid Multiple Loan Applications Simultaneously: Avoid applying for loans or credit products simultaneously. This shows that your business is in a financial crisis and desperately needs money to meet its needs, which will give lenders a second thought about your repayment possibility. It is a wise decision to apply for a loan from no more than two lenders at a time.
6. Periodically Check Your Credit Report: Check CMR online at least once a year must be a routine that you should inculcate to ensure your business's financial health and creditworthiness. Any wrong information or wrongly updated payment details may affect your CMR. Why should you suffer for the fault of someone else? To avoid this, check the CMR and credit report details frequently to ensure everything is correct. Also, by checking your CMR frequently, you will get an early signal that your CMR is getting worse, and you can take action immediately to avoid further CMR damage and improve it.
7. Registering Your Business: Registering your business can help you in many ways. Registering your business as a separate entity will help you avail of business loans and credits based on your business's credit score and not on your individual CIBIL score. Also, it is a clue that you are serious about your business plan, which is again a factor in building creditworthiness from the lender's point of view.
Read More:: Benefits of Good Cibil Score
To run your business successfully, you need funds. Loans and credits are a great way to fund your business. But to avail of credit products easily and without much hassle, you need to prove your creditworthiness in words and numbers. CMR is the numerical score that is based on your past credit history and company demography to prove your financial responsibility and the financial stability of your business. Hence, it becomes a part of your business improvement plan to always maintain a good CMR and to be ready to avail loans at any time. Now that you know how to check CMR rating and how to improve CMR rating, you can consistently check your CMR and maintain a good CMR to keep your company financially fit to avail credit products.
I don’t have a GSTIN for my business. Is it essential for checking CMR?
No. If your business doesn't have a GSTIN, you can upload KYC documents to authenticate during the registration process. Once verified, you will receive your login credentials.
Will the zero credit utilisation ratio help in improving my CMR?
Zero credit utilisation ratio doesn't negatively or positively impact your CMR. However, if you avoid using your credit account, there will be no credit activity, and hence, no information will be available for calculating the CMR. So, it is advisable to use your credit wisely and repay the bills on time so that you can build a good credit history.
Currently, my company is financially stable, and I am not looking for a business loan. Should I check my CMR?
Even though your business is running successfully, you may need funds at any time to move it to the next level. If you inculcate the habit of frequently checking your CMR and maintaining a good CMR, you will always be on the safer side when approaching loans or credit products, and you can proceed with the improvement action plans quickly.
Will my CMR keep changing?
Yes. CMR changes periodically based on your latest credit information. Lenders frequently update their customers' credit details to credit bureaus, and the latest details will also be included while calculating the recent CMR.
How often CMR is calculated?
Lenders update information frequently, usually every 30 to 45 days. Your CMR will also change accordingly.
Are there any fees for checking the CMR?
Yes, CIBIL charges a nominal fee for checking your CMR. The fees vary depending on the plan you choose.
Does the size of the company matter in CMR?
No, the size of the company is not considered. However, other factors like the business type, ownership, location and liquidity of the company are considered as these factors either directly or indirectly contribute to the company's financial health.
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