ECLG - Full Form, Eligibility, Interest Rate and How to Apply

The full form of ECLGS is Emergency Credit Line Guarantee Scheme; it is a type of multipurpose loan offered by the Government of India. The ECLGS primarily aims to provide a line of credit loan facility to MSMEs and business enterprises that have faced hardships due to the pandemic. As a part of the same, government officials provide a 100% credit guarantee on behalf of the National Credit Guarantee Trustee Company (NCGTC). 

The Emergency Credit Line Guarantee Scheme makes up a part of the ₹20 lakh crore package announced by the Indian Finance Ministry back in the early months of the pandemic. It was done to help various struggling enterprises. According to the Emergency Credit Line Guarantee Scheme guidelines, all eligible entities are entitled to a credit of up to 20% of their existing business loan dues starting from February 29, 2020. However, it must be noted that the capping for the same is set at ₹5 Crores.

Key Features of ECLGS Scheme

To determine if the line of credit loan offered under the Emergency Credit Line Guarantee Scheme is the right option for someone, they must review the following features of the scheme:

1. The ECLGS loan amount offered is up to 20% of the borrower’s total outstanding loan of up to ₹50 Crores, which means the maximum loan amount will be ₹10 Crores.

2. Separate loan accounts are made for borrowers who have sanctioned loans under the ECLGS scheme.

3. The ECLGS loans do not attract any fees that one would pay on an ordinary business loan, such as the processing fee and the applicable prepayment charges.

4. The ECLGS scheme offers a repayment tenure of up to 4 years from the date of disbursal.

5. The emergency credit scheme also offers a moratorium of up to one year to repay the principal amount. It is important to note that the ECLGS loan interest rate payment will continue during the moratorium period. Post the moratorium period, the principal balance amount will be paid over three years in 36 equal monthly installments.

ECLGS Scheme Eligibility Criteria

• The MSME or business enterprise borrower accounts must have a minimum annual turnover of up to ₹250 Crores for FY19-20 and combined outstanding loans of up to ₹50 Crores.

• The MSME or Business Enterprise must be recognised as a partnership, trust, limited liability partnership, proprietorship, or a registered company.

• To be eligible for a credit line provided under the ECLGS loan, the MSME or business enterprise must be a GST-registered entity. However, businesses that do not require a GST licence to operate are eligible for the scheme's beneficiaries' benefits.

• Borrowers must also be existing customers on the books of the Member Lending Institutions (MLIs)

• The ECLGS is not applicable for loans provided in an individual capacity.

ECLGS Loan Interest Rate

• Banks and Financial Institutions: The primary ECLGS interest rate as prescribed by the Reserve Bank of India is an external benchmark-linked rate, which stands at +1% and cannot exceed 9.25% in any given year.

• Non-Banking Financial Companies: In the case of NBFCs, the interest rate should not go beyond 14% per annum.

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

ECLGS Loan Application

Now that you have perused the eligibility criteria, features, and interest rates associated with availing of a loan under the ECLGS, the typical next step in the process would be applying for the line of credit loan. However, it is important to note that the credit line offered under the 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 if 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 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.