November 26, 2024 · 11 mins read
Santosh Kumar
CIBIL score, or credit rating, is the criteria by which banks determine the creditworthiness of individuals when they apply for a loan, mortgage, or credit card. Just as the CIBIL score evaluates a borrower's credit goodwill, CMR (CIBIL MSME rank) assesses the creditworthiness of MSMEs or micro, small, and medium enterprises.
CMR is a part of the company credit report that allows MSMEs to view their past credit management records. It also enables lenders to analyse the risk of processing a loan to businesses. Thus, while a CIBIL score is evaluated for an individual's loan application, CMR is a key aspect of a company's loan approval process.
Credit bureaus generate a business credit report for micro, small, and medium companies to help lenders understand the credit goodwill of such entities. Based on these reports, the lender may approve or disapprove a loan application and set interest rates. It allows them to assess the risk associated with disbursing loans to the borrowing enterprise.
A CMR goes beyond the credit rating or score. It provides a comprehensive analysis of an MSME's financial history and credit management that helps lenders make informed decisions regarding loan processing. The report is generated based on the credit information submitted by lenders to the TransUnion CIBIL.
Components of CMR include all past transactions and financial dealings, all credits applied for repayments, and GST details of the entity. Every lender that has previously provided credit to an enterprise submits these details to CIBIL.
When an enterprise makes a loan application, the lender, bank, or non-banking financial institution will pull out your CMR. These reports are updated every seven days, whereas the GST details are updated every month.
CMR analyses the credit profile, repayment history, and current repayment capacity of MSMEs and assigns a grade. The grade ranges between 1 and 10, with a lower grade indicating greater creditworthiness and a higher grade meaning poor creditworthiness. Based on this rating, banks and NBFCs decide whether the entity's loan application should be approved or rejected.
Businesses score between 1 and 10; a CMR-1 shows minimum default risk, and a CMR-10 shows maximum default risk. Remember that CMR is only assigned to businesses with an overall credit outstanding amount of Rs. 10 lakh—Rs. 50 crore.
Several major components in a CMR help lenders ascertain the risk associated with disbursing loans to the applicant company. These key components are:
1. Company details, including address, contact info, and info about various parties related to the business
2. CIBIL grade and issue date of the certificate
3. This is a summary report showing CIBIL rank, past credits availed by the business, past credits secured by the company, payment consistency, adverse information, current exposure to credit, and exposure trends.
4. Details of their CIBIL grade
5. All credit enquiries made by the borrower in the last 3 months and in the last 24 months
6. The company avails all open and closed credit facilities, including delinquent facilities.
7. The business avails all open and closed credit facilities as the guarantor, including delinquent credit facilities.
8. Summary of credit rating assigned by external credit agencies.
Many factors affect the CMR Rating, or the business credit report of the entity. Here are some of the most important factors that influence your credit grades as a business:
The summary section of the CMR rating details the borrowing company's payment regularity. It details all repayments in the past 24 months against credit facilities availed by the MSME. The list of repayments made before the due date, delinquency period, and type of delinquency determines the company's credit grade. This is reflected as a percentage, and the higher this number, the better the business's creditworthiness.
Working capital utilisation denotes the present consolidated funds utilised by the business. Details like average utilisation, credit drawing capacity, and sanctioned loan amounts are included in this section. Together, these analyse how the borrower company has handled liquidity in the past 24 months and how much is available to them presently.
All hard enquiries made by the company in its recent history are detailed in the CMR report. Hard enquiries are instances where the company applied for a loan, and the lender accessed their CIBIL profile to determine creditworthiness. On the other hand, soft enquiries, or those made by the company to see their current CMR rating without a loan application, have no impact on their CIBIL score. Frequent hard enquiries show a hunger for credit, which banks and NBFCs look down upon for credit approval. Fewer inquiries indicate good financial management by the company with a low dependence on credit. Lenders will view too many hard enquiries negatively and vice versa.
The exposure Ratio is the company's current exposure to credit against the maximum outstanding amount in the past 24 months.
The company profile is also a major factor that influences CMR rating. The size and age of the company are considered here, with an older, larger business having more creditworthiness than a new company with a small capital.
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Now that you know what a CMR rating is, you should know why it is critical to maintain a healthy grade. Maintaining a healthy CMR rating will help you obtain credit seamlessly when you need it for day-to-day operations or a major investment.
Business loans generally involve high amounts, and lenders are often a way of providing large credits to MSMEs without collateral. A single case of default may involve exorbitant amounts.
The CMR rating in CIBIL provides a measurable method for assessing a company's creditworthiness. A low score suggests that the business has a positive repayment record, displays prudent financial and credit management, and is trustworthy. With responsible credit management, banks and NBFCs face a lower risk of default and can process loan applications instantly.
And for your business, a low CMR gives you quick & hassle-free access to credits without the need for collateral. Moreover, most lenders offer a lower interest rate on loans to MSMEs with a low CMR grade.
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Before applying for a loan, you must check your CMR to ascertain creditworthiness. Doing so will help you understand your current credit behaviour and capacity. If your CMR rating is high, you can take steps to improve your creditworthiness before applying for a loan.
Here are the steps to check your company's credit report:
1. Visit CIBIL's official website
2. Fill in your name, company address, company & applicant contact details, PAN number, GSTIN, and other necessary details
3. Pay the registration fee
4. You will receive a unique Registration ID & Transaction ID on your registered email by CIBIL.
5. Follow the steps prompted by using your Registration ID
6. Upload KYC documents for verification
You will receive your company credit report on your registered email address after completing the steps above.
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If your CMR is low, you can take a few steps mentioned below to apply for a loan successfully:
All outstanding credit card payments and debts should be paid on time. Just as individuals must repay their dues on time, a company must clear outstanding bills on time for a healthy CMR.
Once again, just as an individual borrower should have a lower need for credit, so should a business in the eyes of lenders. A credit utilisation ratio below 30% will generally result in loan approval. An important point of note here is that even if you are granted a larger credit amount, not utilising it completely will immensely help improve your creditworthiness. A low credit utilisation ratio denotes a lower need for credit, which is considered lower risk by banks and NBFCs.
Short-term loans are viewed as less riskier than long-term loans. It also reduces the burden of repayment on your business and pays off dues on time. If you do not have an outstanding debt, consider opting for a short-term loan to meet your goals. Successfully clearing dues on time will show a healthy capacity to repay credit dues.
This goes without saying. You must clear off all outstanding debts from previous loans before you apply for a new one. Taking additional debt may not be viable in the eyes of lenders, leading to loan application rejections.
Retain your old credit cards and ensure you pay bills on time. A longer history of credit cards, whether personal or business, indicates responsible financial management and stability. This will boost your CMR grades and aid you in future loan applications.
Even the wrong contact information can negatively impact your CMR rating. Make soft enquiries periodically to check your reports and identify any mistakes or discrepancies. Raise any grievances with CIBIL to rectify your credit score.
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It is important to check your CMR rating periodically to detect any errors. If you spot discrepancies in your credit report, you can raise a grievance with CIBIL. Your report may have administrative errors or outdated information, which can negatively impact your creditworthiness.
If you identify an error, follow the steps below to raise a dispute with CIBIL:
Visit CIBIL's portal and log in using your email ID and password. If you have never applied for a CIBIL report, click 'register now'.
Fill out the dispute resolution form and enter the details that need to be rectified in your credit profile.
Once you have entered all the details, review the information and click on 'submit. 'After submission, you can check your Grievance status in the 'Under Dispute' section.
Depending on the type of grievance, CIBIL will notify the lender for clarification.
The lender may either vet or reject the dispute in its response to CIBIL.
If the lender accepts the dispute, cibil will update the details and make corrections to your credit report
If the lender rejects your dispute, CIBIL will make no changes to your credit report and remove your grievance from the 'Under Dispute' section.
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Can I check my company's CMR rating for free?
No, you cannot get your CMR rating for free. You need to visit CIBIL's website, enter the necessary details, and pay a registration fee of around Rs. 3,000 to check your company's CMR rating.
Is an individual's CIBIL report and a company's credit report different?
Yes. An individual's CIBIL report indicates the individual's creditworthiness, while the CMR report indicates an MSME's creditworthiness. While the basic tenets of both remain the same, the CMR report has more components due to the larger credit size.
What are the CMR categories?
The CMR is a predictive model for credit default for MSMEs. The three broad models are CMR 1-3, CMR 4-8, & CMR 8-10. CMR 1-3 indicates a healthy track record with no overdues. CMR 4-7 that the business is delinquent but not an NPA (currently or in the past). CMR 8-10 predicts that the asset may become NPA over 2 years.
Can I get my CMR report if I do not have a GSTIN?
Yes, you can still get your business credit report if you do not have a GSTIN. Upload your KYC documents to verify your request. Once CIBIL authenticates your request, you will be able to view our CMR report and credit score.
Why is my CIBIL rank showing NA?
CIBIL only generates CMR ratings for businesses with outstanding loans between Rs. 10 lakh and Rs. 50 crores. If you have a business debt outside this range or do not have credit in your company's name, your CIBIL rank will show as NA.
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