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Emergency Credit Line Guarantee Scheme for SME Loans

The Emergency Credit Line Guarantee Scheme, also known as ECLGS, is a type of multipurpose loan offered by the Government of India with a provision of 100% credit guarantee from the National Credit Guarantee Trustee Company (NCGTC). The ECLGS is primarily aimed at providing a line of credit loan facility to the various MSMEs and business enterprises that have taken a hit due to unfavourable COVID-related circumstances.

The Emergency Credit Line Guarantee Scheme makes up a part of the Rs. 20 lakh package announced by the Finance Ministry of India to provide emergency credit to various struggling sectors in the Indian economy. According to ELCGS guidelines, all eligible MLIs can receive an approved sanctioned amount of 20% of the outstanding loan as of the 29th of February, 2020.

Eligibility For Emergency Credit Line Guarantee Scheme (ECLGS)

Here are the criteria for credit line eligibility under the Emergency Credit Line Guarantee Scheme:

  • The MSME or Business Enterprise borrower accounts must have a minimum annual turnover of up to Rs. 250 crore for FY 2019-20 as well as combined outstanding loans of up to Rs. 50 crore as on 29 February 2020.
  • The MSME or Business Enterprise must be recognized as either a partnership, trust, limited liability partnership, proprietorship, or registered company.

  • To be eligible for a credit line under the ELCGS, the MSME or Business Enterprise must be GST registered in all cases where such registration is mandatory. However, businesses that do not require a GST license to operate are also eligible under the scheme.

  • Borrowers must be existing customers on the books of the MLI.
  • The ELCGS scheme is not applicable to loans provided in individual capacity.


Features of Emergency Credit Line Guarantee Scheme

In order to determine if the line of credit loan under the Emergency Credit Line Guarantee Scheme is right for you, it might be useful the review these important features offered by the scheme:

  1. The ECLGS loan amount offered is up to 20% of the borrower’s total outstanding loans up to Rs. 50 crore, as on 29th February 2020. The maximum loan amount is Rs. 10 crore.

  2. Note: These limits have recently been raised from the previous figures of Rs. 25 crore for outstanding loans and Rs. 5 crore for loan limit.

  3. For the borrowers that are sanctioned loans under the ELCGS scheme, there is also the provision of separate loan accounts in their name.


Interest Rate for Emergency Credit Line Guarantee Scheme

As with any form of credit line, it is important to stay informed of the ECLGS interest rate offered under the scheme. The ECLGS interest rates provided depend on these given factors:

  • Banks and Financial Institutions: The primary ECLGS interest rate as prescribed by the Reserve Bank of India is an external benchmark linked rate at +1% and is subject to a maximum of 9.25% each year.

  • Non-Banking Financial Companies: In the case of NBFCs, the ECLGS interest rate is not to be exceeded beyond 14% per annum.

  • Existing customers of Member Lending Institutions: No extra fees will be charged from borrowers by the MLIs. The pre-approved benefits must also be forwarded to the existing customers of the MLIs.


Other Charges and Fees for ECLGS

Apart from the aforementioned ECLGS interest rate, there are various considerations for charges and fees that must be taken into account. In the case of availing emergency credit under the ECLGS scheme, here are the relevant points:

  • Margin - The amount of margin required for a credit line under ECLGS is nil.
  • Guarantee Fee - There is no Guarantee Fee charged under the ECLGS scheme.
  • Processing Fee - No Processing Fee is charged under the ECLGS scheme.
  •  Prepayment Penalty - There is also no Prepayment Penalty under the ECLGS scheme as it does not offer a pre-payment option.

Application for the ECLGS Scheme

Now that you have perused the eligibility criteria, features and interest rates associated with availing a loan under the ECLGS scheme, the typical next step in the process would be the application of the line of credit loan. However, it is important to note that the credit line offered under Emergency Credit Line Guarantee Scheme is quite different from other common forms of business loans.

Typically, the borrowing MSME or business enterprise is required to approach a lender to avail the loan. In the case of ECLGS, however, a potential lender will approach an MSME or business enterprise in case they meet the eligibility criteria set out under the guidelines. Hence, the loan application process operates on an automatic pre-approval system.

Once offered, eligible borrowers under the ECLGS scheme can also choose to avail the option to ‘opt out’ of the scheme. On the other hand, borrowers who wish to avail the benefits offered by the ECLGS such as line of credit loan and credit guarantee, can begin their documentation process.

Government Guarantee

The Emergency Credit Line Guarantee Scheme is an ideal option for struggling businesses in today’s economy owing to its provision of collateral-free emergency credit. However, there is no doubt that one of the primary features that makes the ECLGS scheme beneficial for businesses is its status as a credit guarantee fund from the Government. The complete funding that is provided under the scheme comes with a 100% credit guarantee coverage by the National Credit Guarantee Trustee Company Ltd.

Repayment of Emergency Credit Line Guarantee Scheme

Once availed, the borrowing MSME or business enterprise can then follow these repayment guidelines set out under the EGLCS scheme:

  • The Emergency Credit Line Guarantee Scheme offers a repayment tenure of up to 4 years from the date of disbursal.

  • The ECLGS scheme also offers a moratorium of up to one year on the principal amount of the repayment. It is important to note that the ECLGS scheme interest rate payment will continue during the moratorium period.

  • After the moratorium period, the principal amount is to be paid over a period of 3 years in 36 equal monthly installments.

Validity of Emergency Credit Line Guarantee Scheme

The credit line offered under the ECLGS scheme is valid till the 31st of October, 2020 or till an amount of Rs. 3 lakh crore is sanctioned under the Guaranteed Emergency Credit Line Scheme, by Banks and Financial Institutions, whichever is earlier.

FAQs on Emergency Credit Line Guarantee Scheme

  • ✔️Can the ECLGS scheme be claimed through multiple lenders?

    Yes. The ECLGS scheme can be claimed through multiple lenders or single lenders. However, the lender will first have to assess the borrower’s total outstanding loan via the credit bureau.

  • ✔️For how long will the ECLGS loan scheme be applicable?

    The ECLGS loan will be applicable to MSMEs and business enterprises from 23 May, 2020 to 31 October, 2020 or until an amount of Rs. 3 lakh crore has been sanctioned through the scheme, whichever comes earlier.

  • ✔️After taking the loan, can it be prepaid before the end of the tenure?

    The Emergency Credit Line Guarantee Scheme does not provide a prepayment option. Hence, the loan amount cannot be paid back before the tenure, which is 4 years.

  • ✔️Is there any processing fee for the ECLGS scheme?

    No, there isn’t. One of the benefits of the ECLGS loan scheme is that it comes with no additional processing fees or charges.

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