In the wake of the COVID-19 pandemic, India’s Finance Minister, Nirmala Sitharaman, announced the ECLGS or Emergency Credit Line Guarantee Scheme. The scheme was at the forefront of the government’s Rs. Twenty thousand crore financial packages to help businesses.

The salient feature of the scheme was the removal of collateral from the loan, so MSMEs could pay rent, salaries, and shore up restocking options.

The scheme helps lenders, both in the banking sector and otherwise, offer small borrowers an added facility by covering any loss entirely. Defaulters in the MSME sector who weren’t able to converge on their operational liabilities had their backlogs covered by the government.

The scheme caps interest rates for banks at 9.25% and 14% for non-banking financial companies or NBFCs. It covers existing borrowers with outstanding credit limits up to Rs. 25 Crore, with a turnover of Rs. 100 Crore.

The tenure extends to four years, along with a moratorium of one year, directly on the principal amount. The scheme also includes borrowers with 60 days of past dues to be cleared and covers working capital and facilities for term loans.

The scheme is also valid until October 31st.

Considering the scheme is still a new segment, the doubts around it are natural. This is why we’ve curated a list of Frequently Asked Questions all around the topic for you to understand this scheme better.

Take a look –

  1. What is the objective of this scheme?

The scheme’s objective is to help banks and NBFCs extend their line of credit to businesses and MSMEs so they can meet their additional working capital requirements or term loan requirements in the wake of COVID-19.

  1. What is the duration of this scheme?

The scheme is provided for a maximum of four years. It is calculated right from the disbursement date of the required amount. The lender can chart no prepayment penalty if the repayment is made early.

  1. I’m an MSME, what will be the eligibility criteria for me to benefit from this scheme?

If you’re an MSME or business enterprise with an outstanding loan of up to Rs. 25 Crore, till February 29th, 2020 then you’re eligible.

You will need to have a legal GST registration unless your business comes under Udyog Adhar or other schemes which don’t require GST registration.

  1. Did the tenor of the loans provided under ECLGS?

According to the guidelines, the tenor under GECL is provided for four years. This is calculated from the date of disbursement and there is no pre-payment penalty as well that can be charged by the MLI in the event of early repayment.

  1. Will the MLIs ask you for additional collateral for the GECL facility? 

The GECL won’t ask for any additional collateral for the same. All SCBs are eligible as the MLIs. The NBFCs, which are in operation for two years, along with FIs are also available under the scheme.

  1. I’m a retail shop owner, will I be eligible for this scheme? 

As mentioned before, you are eligible if you have a total credit outstanding of Rs. 25 Crores or less, with a turnover of up to Rs. 100 Crore for 2019-20.

You’ll also need a GST registration unless your shop comes under the Udyog Aadhar as not required under the scheme.

  1. I want to claim settlement for this, what will be the procedure? 

The procedure for the claim settlement will be relayed soon, as additional guidelines are released.

  1. How will the interest rate be calculated for the loan under this scheme?

As per the guidelines in September 2019 and February 2020, MSME loans are benchmarked to the external benchmarks rates.

Banks can freely decide to spread right over the external benchmark as per the previously approved policies. Loans under ECLGS must also adhere to the guidelines.

The lending rate is capped at 1% above the external benchmark rate or 9.25% p.a. – depending on whichever is lower.

  1. What will be the security on credit extended under the ECLGS scheme?

GECL credit ranks under the pari passu with all existing credit facilities, such as cash flows, securities, and asset charges, are to be conceptualized within three months of the disbursal date.

  1. When will the detailed operational guidelines for ECLGS and who will have the authority to modify provisions of this scheme? 

There is a detailed guideline by the NCGTC for the scheme operations. The committee can approve the changes based on the structure, currently.

The approval for the scheme is valid up to October 31st. If you’re eligible, you can apply for the same.

If you’ve any pending queries, doubts about the ECLGS, or want to enroll your company into this scheme, contact us, and we’ll be able to help you.