With the spread of COVID-19, the country’s economic structure and flow have been shaken. This has made the functioning of many business organizations and enterprises difficult due to the lowered workflow.

As a solution to this economic crisis, India’s government has put forward the ECLGS scheme as an attempt to reinforce the financial structure for micro, small, and medium business enterprises and MLIs.

What is an ECLGS?

Emergency Credit Line Guarantee Schemes or ECLGS, is a part of a 20 lakh crore package that has been announced and put forward by the Finance Minister of India. The ECLGS scheme is a multipurpose tool provided by the government to strengthen the economic foundation of the most basic level of the market.

Announced on the 15th of May, 2020, this financial package serves to aid MSMEs in the economic sector in light of the COVID- 19 pandemics.

As per the ECLGS scheme, all eligible MSME or similar business enterprises shall receive an approved sanctioned amount of 20% of the outstanding loan as of the 29th of February, 2020.

The ECLGS scheme guidelines provide 100% guarantee coverage to micro, small and medium enterprises under the faculty of General Emergency Credit Line Scheme or GECLS.

Eligibility Criteria for the ECLGS Scheme

To avail and benefit from the ECLGS loan, the following ECLGS scheme eligibility criteria must be met by the MSMEs:

To be eligible, the borrower MSME must have accounts with total outstanding loans adding up to Rs.25 crore as of 29th February 2020. The borrowing enterprise must have a minimum annual turnover of Rs.100 crore for the financial year 2019- 2020.

  1. The MSME receiving the ECLGS loan must be recognized as either a partnership, trust, limited liability partnership, proprietorship, or registered company.
  2. Existing customers who are on the books of MLIs will also be eligible under the ECLGS scheme guidelines.
  3. Businesses and enterprises opting for the ECLGS scheme must have all the necessary GST registration documents wherever required. Businesses that are not required a GST license to operate are also eligible.

ECLGS Scheme interest rate of Credit

The following are the interest rates that apply to the eligible MSMEs and business enterprises under the ECLGS scheme:

  1. Banks and FIs: the leading rate as prescribed by the Reserve Bank of India is set at +1 % and Is subjected to a max of 9.25% each year.
  2. NBFCs: the ECLGS scheme interest rate for NBFCs is set at a maximum of 14% each year and shall not go past this threshold.
  3. Existing customers of MLIs: the MLIs shall charge no extra fee to their borrowers as the pre-approved benefit is also to be forwarded to the existing customers of the MLIs.

Application for the ECLGS Scheme

The ECLGS loan scheme is not like regular loans where the borrower must approach the lender and then go under evaluation for loan approval. Rather it is a more simplistic version of business loans.

The ECLGS scheme guideline establishes an automatic pre-approval system. The borrower need not approach the lender for an ECLGS loan. If the MSME, business enterprise, or MLI is eligible as per the ECLGS scheme eligibility criteria, a potential lender will approach the MSME themselves.

If the ECLGS scheme for MSME is not applicable in that instance, then the business enterprise can opt not to avail of the ECLGS loan.

Other parties who wish to benefit from this scheme will have to go through the documentation process to do so.

Additional details about the ECLGS

  1. This loan scheme will be for an extended period of years from the date of disbursement.
  2. Business enterprises opting for the ECLGS scheme must keep in mind that there will be a one-year moratorium on the principal amount that is to be repaid. During this one year moratorium, the ECLGS scheme interest rate payment will also continue.
  3. After the completion of the one-year moratorium, the remaining principal amount that needs to be repaid will be divided into equal installments across each month of 3 years this means the remaining principal will be divided into 36 equal parts. This shall be paid each month till the end of the tenure.
  4. For the ECLGS scheme, a separate loan account shall be opened in the name of the borrowing MSME. This account shall be different from any other loan account that the borrowing business enterprise may already have under its name.
  5. It should be noted that a business enterprise needs not to be an MSME or recognized as a Udyog Aadhar to avail of the ECLGS loan.
    As long as the business enterprise or borrower is adhering to the ECLGS scheme guidelines and meet the eligibility criteria, they can avail of the ECLGS loan scheme.

Using this guaranteed funding, businesses can rebuild their financial structure and bring back the vitality to the country’s economy during these trying times. Not only does the ECLGS scheme allow the economic flow to regain stability, but it also allows businesses and small enterprises to future improvements and upgrade their overall position in the economic market.

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ECLGS Credit Scheme FAQs:

• Can the ECLGS scheme be claimed through multiple lenders?

The ECLGS scheme can be claimed through either multiple lenders or single lenders; both are equally applicable. Regardless of the number of lenders, the lender(s) will first have to get a clear picture of the total outstanding that the borrower has by checking it with the credit bureau.

2. For how long will the ECLGS loan scheme be applicable?

The ECLGS loan will be available for use from the 23rd of May, 2020 till the 31s of October, 2020 or until an amount of Rs.3 lakh crore has been sanctioned through this scheme, whichever comes first.

3. After taking the loan, can it be pre-paid before then end of the tenure?

The ECLGS loan scheme has no pre-payment option. The borrower cannot pay back the loan amount prematurely before the tenure of 4 years is complete.

4. Is there any processing fee for the ECLGS scheme?

No, there is no additional processing fee or charge for availing the ECLGS loan scheme.

7. Do I need a co-applicant?

A co-applicant is not necessary. However, it may help the process, especially if he/she has filed ITRs. A co-applicant with a steady income tells the bank that interest payments will be kept up with. If taking a loan without presenting ITR, interest rates will hike up to 18-21 percent, so it is necessary to assess whether you will be able to pay them.