The recent pandemic has disrupted the corporate world in different ways. But, small and medium enterprises have felt the biggest impact of this crisis. The major issue with these businesses is the lack of working capital. However, when the COVID-hit MSMEs were about to shut down their business, the ECLGS (Emergency Credit Line Guarantee) Scheme had brought the ray of hope. It helps MSMEs to restore the business by obtaining working capital term loans. However, before talking about the scheme, it is better to know- What is MSME?
According to MSMED Act, 2006, we can define MSMEs as small businesses engaged in the production, manufacturing, and processing of goods. However, there are some other traits differentiating these micro-enterprises from other organizations.
- The invested amount in machinery and plant ranges from Rs. 25 lakh to Rs. 5 crores.
- In the case of the medium-sized enterprise, the invested amount can be between Rs.5 crore and Rs.10 crore.
- The amount mentioned about these enterprises refers to the original cost (it does not include the cost of building and land)
Thus, before applying for a government loan, you must understand what is MSME. Due to the introduction of the ECLGS, the inactive MSMEs resumed their business operations by paying salaries to workers and by clearing the due payments to vendors. Moreover, the manufacturing sector of the country had seen rapid growth after a few months of introducing the scheme. There is a rise in the number of GST collections.
MSMEs that had been shutting down businesses since March 2020 restored their positions.
Rules for ECLGS 4.0– Who are eligible?
According to the latest declaration of the Indian Government, ECLGS 4.0 will be available until September 2021. In this year, there is a fourth revision of the scheme, and the guarantee issue target is about Rs 3 lakh crore,
Under the scheme, ECLGS 4.0, medical colleges, clinics, nursing homes, and hospitals can choose any lending institution to get the credit facility. The highest amount of funding assistance is up to Rs 2 crore. The clinics and other similar organizations can invest the amount in technological setups (like on-site oxygen generation).
Borrowers availing of loans under the ELCGS 1.0 scheme could repay it within four years. But, presently, the government has announced that they will get an additional year for repayment. Moreover, borrowers can apply for loan restructuring based on the latest guidelines from RBI.
In the past, they were bound to pay the first 12-month interest. They got 36 months to pay back the principal and interest. But, now, they get the first 24 months for payment of interests.
ELCGS differs from other loan schemes
ELCGS refers to the pre-approved loan scheme. The eligible borrowers will be able to get the pre-approved loan. They have an option for accepting and rejecting the offer. After the acceptance of the offer, they need to go through a documentation process.
There is also a one-year moratorium period on the principal amount. During this period, the interest is payable. Borrowers can repay the principal in 36 installments when the moratorium period ends.
How much loan will you get?
Small and medium-sized businesses in different sectors can secure a loan of up to Rs 50 crore. However, for businesses in the sporting, hospitality, and travel sector, the highest loan amount is Rs.500 crore.
ECLGS is truly a good move, and till now, more than Rs 1.8 lakh crore has been disbursed. Thus, several MSMEs have found benefits from it. But, the government must offer the loan amount based on the sanctioned working capital for the business.
In case if you do not meet the required eligibility criteria for ECLGS, you can also apply for unsecured business loans from leading lenders and secure collateral-free funds up to Rs.45 lakh. Bajaj Finserv offers business loans with minimal documents and quick approval in just 24 hours.
To simplify the process and faster processing, this NBFC also provides pre-approved offers on its products such as business loans, personal loans and home loans.
