To mitigate the financial stress faced by SMEs and MSMEs, the Indian Government has introduced the Emergency Credit Line Guarantee Scheme that provides additional funding in the form of guaranteed urgent credit to small-scale organizations.

Positive changes in the ECLGS scheme

Viewing the economic distress of different MSME sectors, this scheme aims to provide an incentive to Member Lending Institutions (MLI) to enhance access and ensure the availability of additional funding to MSME borrowers. 

The Indian Finance Ministry and the Department of Financial Services aim to provide financial assistance to MSMEs to meet their regular business expenses and associated financial aspects. Following are the beneficial changes in the emergency credit line scheme-

  • The upper limit of this scheme is increased

During the announcement of this Atmanirbhar package to boost India’s MSME sector, companies with an outstanding loan amount of Rs.25 crore till February 29, 2020, fall under the ECLGS scheme. However, the maximum limit of outstanding loans has been fixed to Rs.50 crore.

  • Incorporation of individual loans

The modified version of the ECLGS scheme has united both the manufacturing and service sectors. Complying with the new changes and mitigating the demand for financial assistance, the Government has introduced individual loans as an essential part of the ECLGS scheme. 

Therefore, professionals like doctors, chartered accountants, and lawyers, etc., who want to establish their organization can now avail business loans under this scheme to financially support their venture.

  • EGECL funding amount is increased

The guaranteed emergency credit line scheme for MSME offered a credit limit of up to Rs.5 crore. However, this upper limit has been extended to Rs.10 crore. 

  • Introduction of larger companies

Previously, the package had been declared considering the economic distress faced by the SME and MSME sectors only. However, the pandemic did not spare the larger companies as well. Leading companies also faced a substantial financial crisis. 

Viewing this scenario, the Government has introduced the emergency credit line guarantee scheme for large-scale companies with a yearly turnover of Rs.250 crore in opposition to the previous amount of Rs.100 crore. Therefore, this is one of the essential government business loan schemes in India that borrowers need to know to boost their small or large-scale organizations. 

However, individuals need to meet the following eligibility criteria to avail these benefits and entitle their business under this scheme. Moreover, this beneficial scheme is one of the creative ways of raising funds for small businesses.

Eligibility criteria to avail Emergency Credit Line Guarantee Scheme

  • MSME borrowers or business enterprises must be registered under GST as this registration is mandatory in every case.
  • This scheme is applicable for existing customers on the book of financial institutions
  • The scheme plans are extended to businesses with partnerships, trusts, registered companies, and other certified small companies.
  • Due to the clause of February 29, 2020, a candidate’s accounts should be at least 60 days older.
  • Applicants with SMA 2 or NPA are not eligible to avail of the scheme.

Apart from these factors, borrowers must know that the credit limit would be 20% for businesses. Similarly, it is extended up to 40% for hospitality, leisure and sports, travel, and tourism. 

Moreover, borrowed credit amount must be paid within 4 years. Generally, in the first year, only the interest amount needs to be paid. However, borrowers should pay both the principal and interest amount to the financial institution in the next three years. 

Thus, this scheme has become an essential source of business finance to address the financial requirements of different MSME sectors. Borrowers willing to avail of unsecured business loans from leading NBFCs like Bajaj Finserv in order to expand or establish their own setup can also enjoy pre-approved offers that will streamline the loan application process. 

These lucrative offers are available on a wide range of unsecured and secured financial products like credit cards, personal loans, etc. Individuals can check their pre-approved offers online by submitting their essential contact details.

In a nutshell, this government-backed Emergency Credit Line Guarantee Scheme is a boon for MSMEs struggling to meet both ends; achieve cash flow and a healthy income. While smaller companies were mostly facilitated, the Government introduced certain changes in the scheme to meet the operational costs of leading businesses.