Credit ratings for small and medium-sized enterprises (SMEs) can play a critical role in helping them access size-appropriate financing. This suggestion comes from Wayne Dass, chief executive officer of the Caribbean’s only rating agency – CariCRIS. He said many SMEs failed to achieve their full potential due to inappropriate funding structures and overly expensive financing.
In the company’s May 2011 Rating Monitor publication, Dass noted that credit ratings would help smaller companies access funding at interest rates that reflect their “true underlying” creditworthiness”. “SME ratings are entity-specific ratings developed to help lenders to the SME sector better evaluate credit quality.
“Recognizing that the drivers of credit quality are different from those applicable to larger companies, SME ratings are done on a scale specially designed for a sector, separate and apart from the normal scale used for larger corporates or sovereigns,” he said.
Dass noted this ensured that the SME was compared only to other SMEs and not larger entities. He said these ratings provided greater confidence to lenders and could provide faster processing of credit facilities since rating reports supplied most of the information needed for loan decision-making.
“Most importantly, SMEs can leverage their rating to lower their borrowing costs. “Indeed in India, where SME ratings are well entrenched and highly utilised, it is common practice for many SME lenders to offer interest rate concessions to SMEs with a rating, ranging from 0.25 percent to 1.25 per cent off the normal applicable lending rate” Dass said.
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