The previous year brought about a devastating impact on the economy, with MSMEs being the worst victims. To tackle this massive economic distress, India’s Finance Ministry developed the Emergency Credit Line Guarantee Scheme.
As per the ECLGS, the government announced an economic relief package of Rs.20.97 lakh crore under the Atmanirbhar Bharat Abhiyaan on 13th May 2020. This package was formulated to provide Guaranteed Emergency Credit Line or GECL loans to the affected MSMEs for working capital needs, business operations, and other emergency expenses. The GECL loan was termed as the ‘Automatic Collateral Free Term Loan’.
About GECL loans and how they can help MSMEs
To mitigate the economic hardship faced by small and medium businesses, the government aims to offer an additional Rs.3 lakh crore in the form of working capital term loans. In addition, NCGTC would provide a 100% credit guarantee to all lending institutions in case any of the borrowers fail to repay the loan amount.
The GECL scheme can prove to be highly beneficial for affected MSMEs. Here are some of its key benefits that Guaranteed Emergency Credit Line loans come with:
Per this scheme, eligible MSMEs can receive additional working capital term loans of up to 20% of their total outstanding credit as of 29th February 2020. The outstanding credit amount should not be more than Rs.25 crore (fund-based only).
The entire loan amount would be provided in a maximum of 4 tranches.
For GECL loans, the government has capped the interest rate at 9.25% p.a. for financial institutions and other traditional lenders. However, for NBFCs, this rate is fixed at 14%.
MSMEs opting for business finance through the GECL scheme are allowed to repay such loan amount within a maximum period of 4 years from the date of loan disbursal. Moreover, a moratorium of 12 months is applicable on the principal amount. But, such an interest amount can be paid at regular monthly intervals.
Business owners have to repay this principal amount in 36 equal instalments once such a moratorium period is completed.
No additional charges
Financial institutions providing GECL loans do not levy any penal interest or processing fee. Business owners also need not pay a guarantee fee to any guarantee trust.
Business owners looking to close a loan before time can use the prepayment feature. Moreover, a lender would not impose any additional charge for pre-paying the loan amount.
Like most other business loans, funds borrowed through the GECL scheme come without any security or collateral. So, you need not put your business or any other valuable asset on the line to avail of a loan.
To avail of this business finance option under the GECL scheme, businesses must fulfil these following criteria:
- MSME borrowers with an outstanding credit of not more than Rs.25 crore as of 29th February 2020 and a yearly turnover of Rs.100 crore are eligible. The total outstanding credit should consist of on-balance sheet exposure. It should not include off-balance and non-fund-based exposures.
- Business enterprises should be constituted as registered companies, trusts, Proprietorship, Partnership, or Limited Liability Partnership.
- A borrower has to be GST registered wherever such registration is necessary.
- To be eligible under the GECL scheme, the existing loans of the borrowers do not need to fall under ECLGS or NCGTC.
However, borrowers who fail to meet these criteria for government business loans can opt for business loans at any of the reputed NBFCs. Therefore, it is essential to know the requirements of a business loan before applying for it. NBFCs like Bajaj Finserv extend high-value business loans against minimal documentation, easy eligibility criteria, and prompt approval.
Borrowers can avail of these loans in a simplified, quick, and hassle-free manner by checking their pre-approved offer. Moreover, one can enjoy these offers on a diverse range of financial products like personal loans, business loans, etc. To check your pre-approved offer, provide basic contact details and OTP.
Loans under the GECL scheme can be quite helpful for small businesses amidst the current economic predicament. However, business owners must carefully check and verify all details about this GECL scheme before applying for a loan.