How can Small businesses improve their Creditworthiness

Creditworthiness of Small businesses

Creditworthiness, in simple words, is how worthy a business is of the loan. If the lender is confident of the business’s capacity to pay back the loan amount within a specific period, while respecting the loan terms etc, the business (the borrower) would be considered credit-worthy. A high credit-worthiness works like an advantage for small businesses, when they are approaching a bank or a financier for a loan that they need for their daily business needs or business expansion plans. In this article, we are covering some best practices and tools, which help every small business gain high credit-worthiness.

Improving creditworthiness should be the priority for small businesses

India is home to approximately 6.5 crore Micro, Small, and Medium Enterprises (MSMEs). While these businesses are big contributors to the country’s economy, the majority of them, often, face many hurdles that could hamper their desire to grow. ‘Access to Financing’ – is the big hurdle that they face, frequently. Banks and NBFCs, usually, demand for relevant & authentic documentation from businesses who seek loans. A neatly maintained credible information collateral showcasing the business’s financial behaviour and revenue generation, can improve the credit-worthiness of the business, when it is being evaluated by Banks and NBFCs. With a high and strong creditworthiness, a business can easily access the loan that it needs, without much stress, and that too at lower interest rate.

Improving creditworthiness with Credible Information Collateral

What is Information Collateral?

Information collateral is the critical data and information that a business owns, like intellectual property, financial records, customer data, etc. If this information is readily available with the founder of every small business, it would improve the business’s credibility and therefore their chance to get financing, quickly.

What are some benefits of  Information Collateral?

  • Ease of Access to Credit: Financiers can easily assess the creditworthiness of a small business, if it has records maintained with a good degree of transparency.
  • Reduced Interest Rates: Transparent and clearly maintained records often can get loans at lower interest rates, because the perceived risk about the business is reduced.
  • Faster Approvals: When all necessary data is readily available, the loan approval process, automatically, would be much faster.

Best practices that improve creditworthiness of small businesses

1.Must-follow Technical practices

Implement Proper Data Management SystemsAdopt Digital TransformationEnsure Cybersecurity Compliance
Efficiently organize dataDigitize business operationsInvest in robust security measures
Ensure data integrity and confidentiality Embrace cloud computing Invest in robust security measures
Maintain proper backupsOpt for E-Commerce platforms Conduct regular security audits and educate staff about cybersecurity 

2. Important Business tools for small businesses

These are some specific tools designed to help small businesses and MSMEs access transaction financing, easily, through information collateral.

Accounting and Financial Management Tools
TallyComprehensive accounting, inventory management 
Zoho BooksCloud-based accounting, invoicing, expense tracking
Marg ERPTailor-made for Indian businesses, GST compliance
Data Management Tools
MprofitPortfolio management & accounting for businesses
FusionChartsData visualization and reporting
Cybersecurity Tools
Quick HealEndpoint security, firewall management
SeqriteEnterprise-level security solutions

Conclusion

Embracing credible information collateral can revolutionize the way small businesses approach financing, especially, financing at a transaction level. By integrating right technical practices and Indian business tools, small businesses can improve their credit-worthiness and chances of getting financing, along with aligning themselves with the growing trend of digitisation of business documentation & processes.


(Note: This content is a high-level overview. A more detailed version would include more comprehensive descriptions of the tools, benefits and best practices, as well as interviews, case studies and additional sections as needed.)

Written by Sandeep Kunkunuru

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