Ratings “farce”: SMEs facing credit ratings ‘lucky dip’
Monday, 31 October, 2011 Leave a comment
I am sickened at the thought of businesses upon which OUR recovery must be based, being treated in such a manner! The impact of Rating Agency “opinions” – which by definition are subjective – upon our global economy should be evidence enough that their influence is extremely dangerous and that an alternative, common, means of rating is a MUST.
Stories such as this one highlight the potential for them to continue to wreak havoc upon any chance of a recovery. We NEED to (re)build from the bottom up and inconsistencies such as a “spread” from £8,400 – £108,000 is all the justification a reluctant lender needs.
Where will the innovation come from, if “creative destruction”, from within crumbling institutions is stifled and small business starved of funding? If finance is about making an advance (loan) in anticipation of the rewards exceeding risk, doesn’t it mean that INNOVATION is a more stable (and robust) form of currency?
The timing of this piece is of particular interest to me and to Ontonix as we have just rated a rating agency (Moody’s)…check other recent blog items…and, of course, we have our own scientific, objective, rating service!
Small and medium enterprises (SMEs) in Britain face a ‘lucky dip’ when it comes to credit ratings, Management Today reports.
Following news that poor consumer demand and rising costs have put extra pressure on SMEs, it is important to keep a good credit rating so companies can get the best prices on business insurance.
However, a new investigation into credit rating agencies has found that many are giving out contradictory ratings to similar companies.
One company received credit limits varying from £8,400 by one agency, up to £108,000 by another.
Poor credit ratings can severely harm a business, causing refused loans or high interest rates on loans that may be necessary for business growth, while also making it harder to get good business insurance rates.