What Is A CIBIL Commercial Report?

When a lender advances money to a borrower it takes a risk as there is a possibility of a default due to various reasons. Risk assessment is a part of the loan approval process, be it an individual or retail loan or a business loan to a small or a large enterprise.

Different lenders have their own way to manage their risk, though the basic premise is that they lend to people or organisations with a sound credit history. Given the volume of loan applications that moves on a daily basis across various lenders it becomes difficult for them to assess all applications and so they have created some basic filters to set a template for the process.

One of the basic ways a lender looks at a loan application is to scan through the borrower’s credit history.

In the case of a retail or individual borrower, this is via a credit score that varies between 300 and 900. The higher this score, the better is the credit history or creditworthiness and, therefore, a higher probability of the borrower returning the entire money along with interest dues and other charges.

In fact, even for small businesses, lenders tend to look at credit score of the owners and or co-owners. This signals the credit behaviour of the promoters and thereby provides a proxy for how the same person may behave for loans availed for his or her business venture.

But as the business grows big, lenders look at the enterprise more closely before deciding on whether or not to accept a loan request.

For very large companies this is usually done via credit ratings that tracks various factors including financials. But many lenders could also insist on evaluating the CIBIL commercial report of the borrower, irrespective of the enterprise being small or large.

CIBIL Commercial Report

TransUnion CIBIL, or CIBIL as it is more commonly known, is a credit information bureau that analyses the credit history of all borrowers and provides a score or a rank to depict their creditworthiness.

A CIBIL commercial report basically analyses the credit information of commercial borrowers to help lenders make prudent loan decisions. This report provides a comprehensive and multi-dimensional credit file information on potential commercial borrowers so one can make more informed lending decisions.

These borrowers include, among others, public limited companies, private limited companies, partnership firms and proprietorships.

The commercial credit Information report offers a wealth of data, ranging from rich credit data sets based on business need to risk scores and more. Lenders can evaluate the financial responsibility of potential commercial borrowers and minimize instances of concurrent and serial defaults.

This enables lenders to execute more efficient underwriting of the loan. This allows lenders to:

• Access credit histories of potential commercial borrowers
• Gain insights into overall borrowings across lending institutions
• Assess financial responsibility before making a lending decision
• Disburse credit faster while sustaining business profitability
• Lend with confidence and mitigate risk

The CIBIL Commercial Report Captures:

• Company background including subsidiaries, ownership and years of operation.
• Financial information on the state of affairs.
• Financial history including repayments, collections, revenue generation etc.
• CIBIL Rank, which is similar to a credit score for an individual. This rank varies from 1 to 10, where 1 denotes the highest credit rank. Just like a higher credit score effectively guarantees a personal loan, a higher credit rank makes it easier for a company to borrow. These ranks are largely provided to small and medium enterprises with credit exposure of Rs 10 lakh to Rs 10 crore.

What Affects CIBIL Commercial Report?

• Credit history: The rank is largely determined by the vintage of the enterprise with a longer credit history providing a better picture in the commercial report.

• Credit utilisation: If an enterprise has borrowed a large sum it pushes up or deteriorates the credit utilisation ratio and adversely affects the commercial report.

• Outstanding debt: Just like a large outstanding debt negatively affects the credit score of an individual as it leads to a lower loan servicing capacity, high outstanding debt also paints a sorry picture in a commercial report.

• Company and sector profile: Commercial reports also take the colour of the size and life of a company and the industry to which it belongs. Some sectors and industries may have a higher risk due to various factors such as business and economic scenario as also geopolitical aspects.

Conclusion

Lenders base their decision to advance money to an individual or a company after factoring in various eventualities besides existing and past status of the borrower. For small businesses, lenders use the credit score of the business owner while for larger enterprises they use credit rating reports.

In the case of small and medium enterprises, lenders tend to bank on the commercial credit report that captures business performance, credit history and repayment track record and more of the business venture.

IIFL Finance offers business loans to small and medium enterprises with or without collateral according to one’s needs via a swift process at competitive interest rates. The non-banking finance company provides unsecured business loans of up to Rs 30 lakh for as long as five years and secured loans of up to Rs 10 crore that can be repaid over 10 years.