How to Deal with the New Rating Culture: A Practical Guide to Loan Financing for Small and Medium-sized Enterprises

This guide provides concrete guidelines for small and medium enterprises (SMEs) that seek loans from banks. It aims to give SMEs practical advice on interaction with banks on credit matters, and uses data from a pan-European survey.The guide discusses:

• The ongoing developments in the banking industry, including recent regulation;
• The evolution of the SME business over time;
• Banks' credit processes and changes relating to them, focusing on what ratings are, and how banks use them;
• A set of basic rules for SMEs to deal successfully with banks on credit matters in the evolving financial environment.

The guide lists the following six rules for SMEs to deal successfully with banks on credit matters:

• Ask for information;
• Deliver clear, complete and timely documentation;
• Check terms and conditions;
• Manage the rating actively;
• Make sure to hold on to the loan;
• Consider alternatives.

The paper concludes by illustrating the application of key points in a fictitious case history (Alpha Manufacturing).