The Finance Ministry of India has formulated the Emergency Credit Line Guarantee Scheme (ECLGS) as a response to the economic distress caused by COVID-19, and the consequent lockdown. Such situations have gravely affected the manufacturing and other operations in the MSME sectors.
Under this scheme, the borrowers can avail of an additional credit of 20% on their total outstanding credit as of Feb 2020. The scheme is further extended into two more categories- ECLGS 2.0 and ECLGS 3.0. Read on to know about these two schemes and how it benefits other sectors.
Hence, to apply for the Emergency Credit Line Guarantee Scheme, business owners need to know about certain essential things to avail of India’s government business loan schemes.
8 Things to Know about the ECLGS scheme:
- Eligible companies – The amount will be provided to MSMEs that constitute Proprietorship, a registered company; Partnership shall be eligible under the scheme. Borrowers with combined outstanding loans across all Member Lending Institutes (MLI) of up to Rs.50 crore as of Feb 2020, with an annual turnover of Rs.250 crore in the financial year of 2019-20, will be eligible.
- Repayment period – The loan tenor under this scheme shall be 4 years with a moratorium period of 1 year. During the entire span of a year, only the interest amount is to be paid. For each following year, interest is to be paid along with the principal.
- Benchmarking – As per RBI guidelines dated September 2019 and February 2020, benchmarking to an external rate is mandatory for all loans sanctioned to MSMEs. The financial institutions are free to determine their spread as per internal policies. Accordingly, loans under the ECLGS scheme must stick to these guidelines and must be linked to external benchmark rates.
- GST registration – The MSME borrowers’ business must be GST registered in cases where registration is mandatory. It is to be noted that this condition will not be applied to MSMEs that do not require GST registration.
- Additional fees – The scheme does not include any processing charge, and there is no requirement for collateral.
- Record maintenance – This scheme includes various reports that help in record keeping. The scheme is meant only for pre-authorised users. The application process of this scheme saves a lot of time and is extremely effective for monitoring.
- Guarantee details – As the system has been developed for issuing guarantee under this scheme, once the lender enters the sanctioned loan details to an eligible borrower as per the guidelines, the system shall automatically approve the guarantee and provide the application reference no. as per the details filed in the ECLGS application form and Credit Guarantee Number.
- Documentation – No documents are required at the time of application of guarantee under this scheme, except in the case of individual loans where the management certifies that the original loan was for business purpose.
Alternatively, suppose borrowers are not eligible to avail of loan under this scheme. In that case, they can choose to consider a business loan extended by reputed NBFCs and need to know every information required to apply for a business loan.
Moreover, existing business loan borrowers can also look through the pre-approved offers extended by such lenders like Bajaj Finserv for a prompt and simplified application process. These offers can be availed on a business loan, personal loan, credit cards etc. Prospective applicants can check their pre-approved offer by mentioning their essential credentials.
This scheme is a beneficial alternative for individuals who seek business loans to recover their enterprise that has been affected due to pandemic. Hence, borrowers should verify all the details of this particular scheme before applying.
This scheme was launched on February 2020 to provide Rs.20 lakh crore relief package to the MSME sectors for their working capital needs, business operations, restarting business that has been impacted due to the pandemic crisis. The Emergency Credit Line Guarantee Scheme provides 100% guarantee coverage by NCGTC to MLIs on GECL up to Rs.3 lakh crore to eligible MSME business owners.