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Why ECLGS is Beneficial for Deserving MSMEs

The micro, small and medium enterprises are the backbone of the Indian economy, contributing 30% of India’s GDP. Therefore, the government strives to Deserving MSMEs bring new schemes to aid this growing sector, especially during economic disruptions.  

One such scheme is ECLGS or Emergency Credit Line Guarantee Scheme. It was launched in 2020 with the primary objective of providing unsecured financial relief of Rs.3 lakh crore to eligible MSMEs. These companies’ business activities have undergone disruptions due to the current economic crisis. 

Owing to the continued economic distress, the government has extended this scheme’s benefits till 30th September 2021, under the fourth revision of the scheme dubbed ECLGS 4.0.

Why is it beneficial for deserving MSMEs?

The primary aim of this scheme is to offer a financial cushion to MSMEs hit by economic distress. According to a survey, over 80% of MSMEs are eligible and have a ranking of CMR-6. These MSMEs are structurally strong and ECLGS is creating further opportunities for such deserving entities.

This MSME loan further creates an opportunity for financial institutions to identify these entities and to help avoid a business financial crisis and maintain a proactive economic environment. 

Benefits of ECLGS:

  • The Government of India provides 100% coverage to the financial institution, offering emergency credit facilities of up to Rs.3 lakh crore to eligible borrowers to finance their working capital.
  • This scheme extends the loan without demanding collateral.
  • Under the GECL loan scheme, there are no charges for processing, foreclosure and prepayment.
  • The interest rate is nominal to facilitate easy repayment by the borrower
  • ECLGS 2.0 extended 20% of the total outstanding credit amount as of 29th February 2020. But ECLGS 3.0 increased the loan amount up to 40% of the total outstanding credit of the borrower. 

ECLGS 3.0 also extends financial assistance to hospitality, leisure, sports, travel, and tourism. 

While ECLGS 4.0 also includes the civil aviation sector and health institutions for on-site generation of oxygen plants. This version also removes the outstanding loan cap of Rs.500 crore, while the maximum loan amount is still limited to 40% across all lending institutions.

Eligibility criteria to avail ECLGS benefits

It is imperative to meet the eligibility criteria to avail of this scheme’s benefits. These following businesses are eligible:

  • The business enterprises or MSMEs with a proprietorship, partnership and limited liability partnership are eligible for this scheme.
  • The eligible borrowers with a combined outstanding amount of Rs.50 crore as of 29th  February 2020 and an annual turnover of Rs.250 crore in the financial year of 2019-20. The sectors added under the ECLGS 3.0 are also eligible whose total outstanding credit balance is less than Rs.500 crore as of 29th February 2020. While ECLGS 4.0 also includes the civil aviation sector and health institutions for on-site generation of oxygen plants.
  • Borrower’s accounts classified as SMA- 0 or SMA -1 as of 29th February 2020 are eligible. Accounts classified as NPA or SMA- 2 as of 29th  February 2020 do not qualify under this scheme.
  • Registration under GST is a must for MSME borrowers. This is not applicable for the MSMEs who don’t need to obtain a GST registration.

Keep in mind that Pradhan Mantri Mudra Yojana loans extended on or before 29th  February 2020 are covered under this scheme. If an individual cannot meet these above mentioned eligibility parameters, they can opt for business loans. The micro, small and medium enterprises are the backbone of the Indian economy, contributing 30% of India’s GDP. Therefore, the government strives to Deserving MSMEs bring new schemes to aid this growing sector, especially during economic disruptions. 

Keep in mind that Pradhan Mantri Mudra Yojana loans extended on or before 29th  February 2020 are covered under this scheme. If an individual cannot meet these above mentioned eligibility parameters, they can opt for business loans. 

When acquiring such credit from renowned NBFCs like Bajaj Finserv, an enterprise can seek a high-value loan. The NBFC also provides pre-approved offers to their existing customers to further streamline the process. You can check your pre-approved offers by providing your name and contact details. While ECLGS 4.0 also includes the civil aviation sector and health institutions for on-site generation of oxygen plants.

Hence, if the business owners have access to this MSME loan, it will provide a financial cushion to maintain a healthy cash flow and scale up their business to influence the country’s economic growth.

Moreover, continuous revisions of the scheme also give a positive signal to bring in new reforms that provide additional financial help to these stressed companies.