What MSMEs Should Know Before Applying for a Business Loan

By definition, MSME stands for 'Micro, Small and Medium Enterprises'. However, when it comes to their role in the Indian economy, the acronym could well be read as 'Mighty, Significant and Meaningful Enterprises'. Here's why: India has approximately 6.3 crore MSMEs. Collectively, this sector employs around 11.10 crore people, and constitutes about 30% of India's Gross Domestic Product, as per government data. Not surprisingly, the MSME sector has earned the moniker of being the 'backbone' of the Indian economy.

This backbone, however, has been reeling under severe strains over the past two years. From sudden drop in demand, non-availability of the workforce, and inability to pay wages to liquidity crunch, MSMEs have faced the harshest brunt of pandemic-induced lockdowns. In a bid to support the sector, the government introduced several schemes, such as the Emergency Credit Line Guarantee Scheme (ECLGS). While it has alleviated the pain to an extent, certain inherent problems continue to create a credit gap.

To survive and thrive through this period, MSMEs must have access to adequate capital. The only problem is that it isn't as easy as it sounds.

Bottle-necks for MSMEs in securing capital:

• Lack of knowledge about the formal lending landscape
• Poor record-keeping of credit and transaction history makes it difficult for MSMEs to acquire the necessary documents
• Delayed loan approvals due to inadequate paperwork

Simply put, lenders find it hard to assess the creditworthiness of MSMEs. This makes the turnaround time for loans extremely long. The loans that do get approved come with high-interest rates. Consequently, MSME owners move towards unsecured means of credit, which tend to be costlier and riskier.

To overcome this bottleneck, MSMEs need to have a complete record of their financial health. And that has been made possible through CIBIL Rank and Company Credit Report along with the GST report. Let's understand each of these separately.

Understanding CIBIL Rank & Company Credit Report:

• Company Credit Report (CCR) is a record of the company's credit history, and is an indicator of its financial health. Lenders give loans based on the CCR.
• CIBIL Rank is the summary of the CCR in one number. Typically, if a company's CIBIL rank is between 1 and 4, there is a much higher chance of getting a loan.
• GST Report is based on the GST returns of the business and includes details such as GST filing summary, a month-wise trend of GST paid, an overview of monthly sales and purchase data (including a detailed break-up of the same), and comparison of sales and purchase trends in the last 24 months. As the GST report is based on data taken from the GST portal, it is a trusted source of information for banks and can speed-up the calculation of the loan eligibility process.

Benefits of using CIBIL Rank & CCR along with the GST Report:

As is evident, CIBIL Rank & CCR along with the GST Report provides a 360 degree view of the business - the credit history and overall financial well-being. It makes the lending process smoother for the borrowers as well as lenders. While the benefits are many, here are some of the most important ones:

• This report enables MSME owners to have a thorough understanding of their financial health.
• MSMEs get increased opportunities for loans from the formal ecosystem, along with competitive interest rates. Some lenders offer preferential interest rates to MSMEs with a CIBIL Rank between 1 and 4.
• Banks get a holistic understanding of a company's financial health through these reports, thereby ensuring MSMEs get capital infusion on time.
• As there is proof of the company's financial health, it will be easier to submit project proposals for government tenders.
• The GST Report opens the opportunity to apply for loans through the GST-based lending route.

Given these advantages, it is advisable for MSMEs to periodically review their CIBIL Rank & CCR along with the GST Report. To ensure that more and more MSMEs get access to this reports, TransUnion CIBIL has ensured that the process of acquiring these is fast, seamless, and paperless.

Getting CIBIL Rank & CCR With and Without GSTN-based Verification:

The entire process of obtaining the report with GSTN-based verification is paperless and easy.

a. Customers can visit https://cibilrank.cibil.com/ and select a subscription package that meets their credit requirements.

b. They should enter their GSTN and wait for the green verification tick. Then proceed.

c. They will be redirected to a pre-filled enrollment form. They must verify the information on the page. They must also remember to key in the contact information.

d. They must provide their consent to proceed.

e. They must enter their GSTN username to verify their identity.

f. Then, they must enter and verify the OTP received.

g. The payment can be made at the payment gateway.

h. The customer will receive two emails - one containing the login details, and another to verify the email id.

There is also a way to complete the process without GSTN-based verification. It will require additional information from the customer. Here is the process-

a. Customers must visit https://cibilrank.cibil.com/ choose the appropriate subscription, and then click on "Continue without GSTN".

b. They will then be redirected to a blank enrolment form which will have to be filled with the relevant details about the company.

c. At this stage, an OTP will be sent to the registered mobile number. It must be entered to continue.

d. Then, the payment must be made at the payment gateway, after which the page will redirect to a Thank You message.

e. On the Thank You page, there will be an option to upload KYC documents. Once these are uploaded, the reports will be available for viewing.

In today's complex and uncertain world having clarity about the financial health of the business along with a wider set of options to avail formal loans can be a game-changer for MSMEs. The 360-degree view that the CCR, CIBIL Rank and GST report provide is an excellent way for MSME owners to improve their understanding of the company's finances and gain better control over it in a quick, effortless, and paperless manner.