In support of improving the economy of India, the government introduced an ECLGS scheme to provide 100% guarantee coverage to financial institutions. This enables lending corporations to extend emergency credit facilities to eligible borrowers to face multiple challenges easily. Nevertheless, one must assess how such an initiative is beneficial for small businesses.
6 beneficiary factors of the scheme
Listed below are some advantages of registering under this scheme –
Higher credit availability
As per its latest update, small businesses can borrow an extra 30% of their credit limit. The aim is to assist the SME sector in controlling liquidity crises, generating employment, and sustaining their set-ups. Under its new guidelines, the loan amount is extended up to Rs.2 crore for hospitals, clinics, nursing homes, medical institutes to set up oxygen generation plants on site. The interest rate is limited to 7.5% for the same.
Repayment benefits
Individuals eligible for restructuring according to 5th May 2021 RBI guidelines and those who have availed loans under ECLGS scheme last year against a tenor of four years can now opt for the same for a tenor of 5 years. Previously, they had to repay the interest during the first 12 months, followed by principal repayment and interest payment in the next 36 months. The change in the new update is the extension of interest repayment tenor to 24 months.
Extension of validity
Considering the impact of the current situation on India’s MSME sector, the Union Government has extended validity of this scheme till 30th September 2021 or till guarantees for Rs.3 lakh crore are issued. The scheme allows disbursement up to 31st December 2021.
Interest rates
The interest rates are lower, allowing easy repayment of debts. This will help to organise business finances effectively.
No additional charges
This collateral-free scheme has no processing, foreclosure, and prepayment charges.
Additional benefit
Borrowers who avail scheme benefits under the ECLGS 1.0 can enjoy an extra 10% of their remaining credit amount.
New implementation
According to fresh guidelines, financial institutions had sanctioned Rs. 2.46 lakh crore worth of loan as of 28th February 2021. Moreover, the Union Ministry has extended the scope of this scheme to support business expansion in hospitality, travel and tourism, leisure and sporting services.
What are the eligibility parameters to avail ECLGS scheme?
Borrowers have to fulfil the stringent eligibility criteria set by the government. Some of them are-
- Enterprises with a turnover of up to Rs.100 crore for FY 2019-20 are eligible for the scheme benefits.
- From 29th February 2021, borrowers having NPA or SMA-2 status cannot avail the assistance. Applicants’ accounts should be classified as regular SMA-0 or SMA-1 as of 29th February 2020.
- Borrower accounts must be less than 60 days past due as of 29th February 2020.
- The ECLGS does not cover loans provided in an individual capacity.
- Companies only with a proprietorship, partnership, and limited liability partnership can opt for the assistance.
- The enterprise must be registered under GST to be eligible. However, this does not apply to the MSMEs, which do not require a GST registration.
- ECLGS covers only the Pradhan Mantri Mudra Yojana loans, which are extended on or before 29th February 2020.
If an applicant fails to meet the stated criteria, he/she can avail a standard business loan from NBFCs. These can also fulfil a business’s working capital shortages.
However, it is essential to compare the offers provided by the financial institutions before availing one. This will also help to determine the best time to avail a business loan.
Prominent NBFCs like Bajaj Finserv provide exclusive offers on business loans against minimum documentation and simple eligibility criteria. To streamline the process, it extends pre-approved offers to its existing customers. Submit your contact and personal details to check your pre-approved offer.
Regardless, the ministry claims that certain modifications in this ECLGS scheme will enhance the utility by enabling additional support to small businesses. They will further help safeguard the livelihoods and further facilitate the seamless flow of institutional credit at reasonable terms.
When managed expertly, such loans can encourage business expansion, unlocking the true potential of a company.
