The Micro, Small & Medium Enterprises sector has been recognized as the growth engine in the development of the country. The development of MSME has been assigned an important role in national plans. Commercial banks are advised from time to time by Government of India and Reserve Bank of India to finance liberally to MSMEs. Following are the options available through banks:-
Cash Credit/Over Draft - A Cash Credit is a short-term loan to a company for meeting its working capital requirements. Loan limit is prearranged and companies can continuously draw up to the limit as and when needed against hypothecation of current assets & charge against collateral securities.
Term Loan – It fulfils the need of long-term funds to enable growth opportunities of business, expansions and other such requirement on the basis of companies estimated cash flows. These loans are primarily secured by a first charge on the fixed assets acquired through the loan amount and suitable collateral security.
Export Finance – It is an option for export activities in the form of Pre-Shipment Credit against firm order and or Letter of Credit and Post shipment credit. Credit is available for procuring raw materials, manufacturing the goods, processing and packaging the goods and shipping the goods.
Bank Guarantees - Bank Guarantee is provided on behalf of client to various other entities such as Government, corporates etc. A range of guarantees are provided such as performance guarantee, financial guarantee, etc.
Letter of Credit - Letter of Credit is provided to meet need for trade purchases. These are generally provided for few months depending upon customer's trade cycle.
Loan against Property - Loan against commercial & residential property is provided as per current market value of the property in the form of overdraft/ term loans.
Lease Rental Discounting – Finance in the form of discounting of lease rentals of a reputed lessee is available subject to the terms of lease.
Loans under CGTMSE Scheme – Banks provide collateral free lending to MSMEs backed by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). Maximum lending up to Rs. 2 crore per borrower is available.
Structured Finance Options:- Moreover various banks provide structured finance options as per specific requirement of specific industry/company also.
Recently Due to Covid-19 and Lockdown situation Businesses/MSMEs have been badly hit and need additional funding to meet operational liabilities built up, buy raw material and restart business. To support to various sections including cottage industry, MSMEs, labourers, middle class, industries, among others, Government has announced a Special economic and comprehensive package of Rs 20 lakh crores - equivalent to 10% of India’s GDP, .
In this there is a Rs 3 lakh crores Collateral-free Automatic Loans for Businesses, including MSMEs. Where an Emergency Credit Line to Businesses/MSMEs from Banks and NBFCs up to 20% of entire outstanding credit as on 29.2.2020 is extended to Businesses/MSMEs.
Following are the highlights of Emergency Credit Line Gaurantee Scheme (ECLGS):-
- Borrowers with up to Rs. 25 crore outstanding and Rs. 100 crore turnover eligible
- in the form of additional working capital term loan facility
- Loans to have 4 year tenor with moratorium of 12 months on Principal repayment
- For Banks and FIs, lending rate linked to one of the external benchmark rates prescribed by RBI +1% subject to a maximum of 9.25% per annum
- 100% credit guarantee cover to Banks and NBFCs on principal and interest
- No additional collateral shall be asked for additional funding
- No Guarantee Fee shall be charged
- GST registration mandatory if required to obtain GST registration
The Scheme would be applicable to all loans sanctioned underGuaranteed Emergency Credit Line (GECL) during the period from the date of issue of these guidelines by National Credit Guarantee Trustee Company Limited to 31.10.2020, or till an amount of Rs 3,00,000 crore is sanctioned under the GECL, whichever is earlier
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