Why MSME Owners Have Low CIBIL?

For Indian MSMEs, a strong CIBIL score is not just a number; it is the key to unlocking better financing options, competitive interest rates, and higher credibility in the market. However, many MSME business owners often find themselves with low CIBIL scores, unknowingly sabotaging their chances of securing loans or accessing growth capital. Understanding why this happens is crucial for your business's long-term sustainability.

Six Key Reasons Why Indian MSMEs Have Low CIBIL

1. Mixing Personal and Business Finances: A common mistake among small business owners is blending personal and business finances. Using personal credit cards for business expenses, or vice versa, can distort the financial picture and lead to erratic repayment patterns. This impacts personal CIBIL scores directly and could spell trouble when applying for loans under the business name.
2. Inconsistent Cash Flow Management: Many MSMEs face irregular cash flows due to delayed payments from clients, seasonal sales fluctuations, or unpredictable expenses. These cash flow inconsistencies often lead to missed payments on existing loans or credit cards, which has a direct and negative impact on the credit score.
3. Lack of Awareness and Monitoring: A significant number of MSME owners aren’t even aware of their CIBIL scores or how to monitor them. This lack of awareness leads to neglecting the score until it’s too late—such as when a loan is rejected. Regularly checking your credit report helps you stay on top of potential discrepancies or overdue payments.
4. Multiple Loan Applications in a Short Time: MSME owners often apply for multiple loans in a short span of time to meet urgent financial needs. However, each loan application leads to a "hard inquiry" on your credit report, lowering the CIBIL score. Repeatedly being rejected further damages the score, making future loans more difficult to obtain.
5. Over-reliance on Informal Credit: Many MSMEs rely on informal sources of credit, such as personal loans from friends or family, or high-interest loans from unregulated lenders. While these may seem convenient, they do not contribute to building a formal credit history, which is essential for maintaining a healthy CIBIL score.
6. Poor Debt Management: Some MSME owners do not fully understand the repayment terms of their loans or credit cards. This leads to delays or defaults in payments, which immediately affects the CIBIL score. Ignoring loan restructuring options during financial distress can also result in a deeper hit to the score.

For MSMEs, a good CIBIL score is indispensable in the modern financial ecosystem. Whether you are looking to scale your business, manage your cash flow more efficiently, or ensure timely repayments, maintaining a strong CIBIL score opens doors to better financing opportunities and ensures smoother operations.

At Moksha Finance, we understand the unique challenges faced by MSMEs in India. Our team of financial experts is here to help you optimize your credit health, secure business loans at favorable rates, and sustain long-term financial growth. Remember, your CIBIL score is your business's silent partner—nurture it wisely!