The ongoing COVID-19 pandemic has taken the world by storm. With a direct impact on human life, all activities that were once a normal way of life were brought to a standstill. This includes businesses too. Having said that, steps are being taken by the government to restore normalcy in one of a lifetime events that brought everything to a complete halt. This is when the Emergency Credit Line Guarantee Scheme (ECGLS) was introduced by the Government of India. To understand the ECLGS, we first need to understand Guaranteed Emergency Credit Line (GECL). Let’s have a look –
What is a Guaranteed Emergency Credit Line?
GECL is a completely guaranteed loan facility provided by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs). This facility is extended to MSMEs that are eligible and other interested borrowers under the Pradhan Mantri Mudra Yojana (PMMY). A working capital loan is provided by Scheduled Commercial Banks (SCBs), Financial Institutions (FIs) with an additional term loan by the Non-Banking Financial Companies (NBFCs). The credit available under the GECL is up to 20% of the amount outstanding with a limit of ₹ 25 crores. This amount excludes the off-balance sheet items and non-fund based exposures.
What is Emergency Credit Line Guarantee Scheme?
Emergency Credit Line Guarantee Scheme or ECLGS is a loan scheme for the MSME sector. It was launched specifically to provide SME loan assistance due to the recent pandemic. More particularly, the working capital issues are dealt with under this scheme owing to the multiple lockdowns around the country that have significantly impacted small businesses. Under this scheme, an additional capital amount of ₹ 3,00,000 crore is to be provided, more specifically targeting the recovery of the MSME sector. By way of funding from this ECLGS scheme, it serves as means to restart the businesses with a business loan that have inadequate working capital. The beneficiaries under the ECLGS scheme are those organisations registered as proprietorships, partnerships, private limited companies, limited liability partnerships and trusts.
What is the objective of ECLGS?
The main objective of the ECLGS scheme is to tackle the business situation created by the pandemic. By providing affordable SME loan interest rates, the MSME sector can restart its operations without many hassles.
What are the benefits of the ECLGS?
The benefit under this scheme is that the repayment tenure for such an SME loan facility is four years. Further, there is a moratorium period of one year on the principal sum borrowed. Thus, you are only required to repay the interest for the first year whereas the remaining principal needs to be paid within three years. This scheme’s applicability of ECLGS is for all loans sanctioned under the GECL scheme from 23rd May to 31st October 2020 or till the time ₹ 3 lakh crores are sanctioned. There are separate loan accounts for the borrowers who receive a sanction under the ECLGS scheme.