SMEs are more credit worthy than you think

According to a study by Crisil, small and medium enterprises (SMEs) account for the major part of commercial activity in the country, although they have traditionally been seen as not very credit-worthy than large corporations. The Economic Times reports that the study was conducted comparing data from 2,500 large corporates and around 32,000 SMEs in the manufacturing sector.

SMEs compare well with their larger cousins on several debt protection parameters, and are more bankable credits than they are generally perceived to be. Although SMEs do not fare quite as well on the profitability front, possibly on account of the competitive pressures they face, this is offset by much better debt-equity levels.

Additionally, SMEs differ widely from one another in performance and credit quality. Therefore, the performance and credit quality of an individual SME cannot be judged on the basis of conclusions drawn from evaluating the performance and credit quality of SMEs in general. Here entity-specific ratings help lenders better evaluate the credit quality.