SME Sector

How will The ECLGS Scheme Be Essential for The SME Sector?

Last updated on June 23rd, 2022 at 04:24 am

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The one scheme that provides 100% coverage to the banks is the ECLGS scheme. It also provides coverage to many non-banking financial companies to enable them to extend emergency credits. It is precisely for any business that is struggling with its working capital requirements.

Lately, due to the pandemic situation, many businesses have faced an out lash. Due to that, the government of India has announced the Emergency Credit Line Guarantee Scheme.

Purpose of Emergency Credit Line Guarantee Scheme

The Emergency Credit Line Guarantee Scheme provides guaranteed coverage of a hundred percent to the non-banking financial institutions, banks, and other lending institutions. They aim to enable these banking and non-banking financial institutions to extend the emergency credit to any struggling business entities. In recent times many businesses have suffered due to the outbreak of the covid-19 pandemic. This scheme provides help to these businesses. The emergency credit guarantee scheme comprises ECOG 0.1, ECOG 0.2, and EGGS 0.3.

Why is the ECLGS scheme essential?

The ECLGS scheme applies to every kind of loan that gets sanctioned under GECL. It is applicable from the period of 31.10.2021 that is the period of the announcement of the scheme. The Government of India has created this scheme to respond to the unprecedented situation of the consequent lockdown. This scheme is essential due to various reasons. Some of these reasons are:

  • All theSME loanborrowers who have an outstanding credit of Rs. 25 crores and more as of 29.02.2020 are eligible for funding under this scheme. However, the borrower must have an annual turnover of nearly Rs. 100 crore and should have regular SMA 0 and SMA 1 accounts.
  • In financial institutions and banks, one can avail the amount of funding in an additional working capital terms loan. However, in non-banking financial institutions, one can borrow this funding in terms of additional term loans. This loan would be 20% of the borrowers’ total outstanding credit, which can go up to Rs. 25 crores.
  • The entire fund provided by the banking and non-banking financial institutions would give a 100% credit guarantee to all MLIs by the NCGTC under the Emergency Credit Line Guarantee Scheme.
  • The tenor period of this loan under this scheme will continue for four years. However, one would enjoy the moratorium period on the principal amount for one year.
  • The Emergency Credit Line Guarantee Scheme does not ask for a guarantee fee from the member lending institutions.
  • The interest rate under the emergency credit and guarantee scheme is 9.25 for banking and financial institutions. At the same time, it is 14% for non-banking financial companies.

Eligible member lending institutions under this scheme

  • The member lending institutions under this scheme comprise non-banking financial companies, scheduled commercial banks, and other financial institutions.
  • All non-banking financial companies and home finance companies are in operation under this scheme for a few years as of 29.02.2020.

Credit facility

  • The amount of funding offered to the eligible borrowers would be either an additional term loan facility or other working capital. It would be 20% of the total credit outstanding of the business.
  • The number of funds provided to the eligible borrowers can be either non-fund-based or fund base under the Emergency Credit Line Guarantee Scheme 2.0. However, the borrowers should meet every eligibility criteria to get the credit facility.
  • Borrowers who have already availed of Emergency Credit Line Guarantee Schemes 1.0 and 2.0 would be eligible for a credit of 20% on their total credit outstanding under the Emergency Credit Line Guarantee Scheme 3.0.
  • The member lending institution needs to open a separate account for the credit facility under this scheme.
  • The loan extended through various government schemes, including PMMY and PMEGP, would be categorized under the emergency credit and guarantee scheme.

The ECLGS scheme and SME loan benefit most of the business enterprises in travel and tourism, hospitality, and sports. The scheme considers loans that are less than 60 days overdue.

In case you fail to meet the required eligibility criteria, you can apply for an unsecured business loan from leading financial institutions and get funds up to Rs. 45 lakh. For hassle-free and quick processing, you can approach Bajaj Finserv and get funds with minimal documents and simple terms.