Emergency Credit Line Guarantee Scheme

The COVID-19 pandemic has had a significant impact on the global economy, leading to financial strain on many businesses across various sectors. To mitigate the economic fallout, governments around the world have introduced several measures, including financial assistance schemes to support businesses. In India, the government announced the Emergency Credit Line Guarantee Scheme (ECLGS) in May 2020, as part of its COVID-19 relief package.

The ECLGS is a loan guarantee scheme that aims to provide financial support to micro, small, and medium enterprises (MSMEs) in the country that have been impacted by the pandemic. Under the scheme, eligible borrowers can avail of additional credit of up to 20% of their outstanding credit as of February 29, 2020. The loans are fully guaranteed by the government, and the repayment period is up to five years, including a one-year moratorium on principal repayment.

The ECLGS has been a significant step towards providing relief to the MSME sector, which is a critical component of the Indian economy, contributing significantly to employment and GDP growth. This scheme has helped many businesses to overcome their financial difficulties and continue their operations during the pandemic. As of January 2021, over 2.4 million MSMEs had benefitted from the scheme, receiving loans worth over INR 1.5 trillion.

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Eligibility Requirements 

1. The scheme is available for Micro, Small, and Medium Enterprises (MSMEs) with outstanding credit up to Rs. 25 crores as of 29th February 2020, and an annual turnover of up to Rs. 250 crores.
2. The MSME should be registered under Goods and Services Tax (GST).
3. The borrower should not be in default for more than 60 days with any bank as of 29th February 2020.
4. The borrower should have a satisfactory credit score.
5. The loan can only be used to meet operational liabilities and working capital requirements.
6. The scheme is applicable to both existing as well as new borrowers.
7. The loans under this scheme are provided by banks and financial institutions that are registered under the ECLGS.

It is important to note that these requirements are subject to change, and interested borrowers should check with their respective lenders or the government’s official website for the latest updates and guidelines.

Application Process 

1. The MSME borrower should first approach their existing lender to apply for the ECLGS loan. The lender will then verify the eligibility of the borrower and the proposed loan amount.
2. The borrower will need to provide documents such as GST registration certificate, KYC documents, bank statements, and other documents that may be required by the lender.
3. Once the lender verifies the documents and approves the loan, they will submit an application to the National Credit Guarantee Trustee Company (NCGTC), which is the nodal agency for this scheme.
4. The NCGTC will then issue a guarantee to the lender for the approved loan amount.
5. The lender will then disburse the loan to the borrower’s account.

It is worth noting that the exact application process may vary slightly depending on the lender and other factors. Borrowers can check with their respective lenders for more information on the application process and the required documents.

Loan Amounts and Interest Rates 

1. The loan amount for this scheme is up to 20% of the borrower’s outstanding credit as of 29th February 2020, subject to a maximum of Rs. 25 crores.
2. The interest rate for ECLGS loans is capped at 9.25% per annum, including all charges.
3. The repayment period for these loans is up to 5 years, including a moratorium period of 1 year on the principal repayment.
4. The government provides a 100% guarantee to the lending institutions for ECLGS loans.
5. The ECLGS scheme has been extended several times, and the last date to avail of the scheme is 31st March 2022.

It is worth noting that the exact loan amounts and interest rates may vary depending on the lender and other factors, and interested borrowers should check with their respective lenders for more information on the loan amounts, interest rates, and other terms and conditions.

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Loan Repayment Terms 

1. The repayment period for ECLGS loans is up to 5 years, including a moratorium period of 1 year on the principal repayment.
2. During the moratorium period, the borrower is not required to make any principal repayments. However, the interest accrued during this period will have to be paid by the borrower.
3. After the moratorium period, the borrower will have to repay the principal amount in equated monthly installments (EMIs) along with interest.
4. The repayment schedule for the loan will be fixed by the lender at the time of loan disbursal.
5. If the borrower defaults on the loan repayment, the lender has the right to take necessary legal action to recover the outstanding amount.
6. The ECLGS loan can be pre-paid at any time without incurring any pre-payment charges.

It is important to note that the exact loan repayment terms may vary depending on the lender and other factors, and interested borrowers should check with their respective lenders for more information on the repayment terms and conditions.

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Collateral Requirements 

1. ECLGS loans are collateral-free, which means that borrowers do not have to provide any security or collateral to avail of the loan.
2. The government provides a 100% guarantee to the lending institutions for ECLGS loans, which serves as collateral for the loan.
3. However, the lending institutions may ask for some additional documents and information to evaluate the creditworthiness of the borrower, such as bank statements, GST returns, and other relevant financial documents.
4. In some cases, lenders may require personal guarantees from the promoters or directors of the MSME.

It is worth noting that the collateral requirements may vary depending on the lender and other factors, and interested borrowers should check with their respective lenders for more information on the collateral requirements and other terms and conditions of the ECLGS.

Tax Benefits 

1. The interest paid on ECLGS loans is eligible for a tax deduction under Section 36(1)(iii) of the Income Tax Act, 1961.
2. The tax deduction is available for the interest paid on the ECLGS loan during the financial year in which it was paid.
3. The tax deduction is available to all MSMEs that are eligible for the ECLGS scheme.
4. The maximum tax deduction that can be claimed under Section 36(1)(iii) is the actual interest paid during the financial year.
5. The tax deduction is subject to the overall limit of Section 36(1)(iii), which is 30% of the income of the MSME.

It is worth noting that the exact tax benefits may vary depending on the borrower’s specific circumstances and the prevailing tax laws and regulations. Interested borrowers should consult with a qualified tax professional or chartered accountant for more information on the tax benefits and implications of the ECLGS scheme.

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FAQ’s

What is the maximum loan amount that can be availed under the ECLGS?

Eligible MSMEs can avail of loans of up to 20% of their outstanding credit as of 29th February 2020, subject to a maximum of Rs. 25 crores.

What is the repayment period for ECLGS loans?

The repayment period for ECLGS loans is up to 5 years, including a moratorium period of 1 year on the principal repayment.

 Can I prepay my ECLGS loan?

 Yes, borrowers can prepay their ECLGS loans without incurring any prepayment charges.

Conclusion: “Emergency Credit Line Guarantee Scheme”

In conclusion, the Emergency Credit Line Guarantee Scheme (ECLGS) is a crucial government initiative to support MSMEs and ensure their financial stability during the COVID-19 pandemic. The scheme offers several benefits such as collateral-free loans, low-interest rates, extended repayment periods, and a moratorium on principal repayment, making it an attractive financial solution for MSMEs that require funds to meet their business needs.

The scheme has played a significant role in providing financial assistance to MSMEs and boosting their confidence during these difficult times. It has also helped in preserving employment and sustaining economic growth. However, borrowers should ensure that they meet the eligibility criteria and provide accurate information to the lending institution during the application process.

Overall, the ECLGS scheme is an important initiative that showcases the government’s support for the MSME sector and highlights its commitment to reviving the economy and fostering economic growth in India.