CONSULTEASE.COM

Sign In

Browse By

Features of Various Credit Schemes Available for MSMEs and How to Apply for Them?

Having weathered a couple of massive tidal waves of statutory disruptions of ‘Demonetisation’ and ‘GST,’ the MSME sector was just in the striking distance of the wharf. Little did they know that they have to encounter two more tsunamis of the devastating Corona pandemic, but thanks to the online e-commerce portals which gave them the required oxygen to remain afloat. MSMEs are the heart and lungs of the Indian economy. They not only provide maximum employment but also generate new technology, innovation, and critical foreign exchange for the country. Most of the Start-Ups are blooming in this category only. This sector is the maximum deserving candidate for cheap and easy credit but is the most under-served of the whole spectrum. The banks are leery of giving loans to this sector because of new and unique business models and unusual, erratic revenue streams. Despite its crucial role in the progress of the country, it has been undergoing a very bad phase for a few years because of the cash crunch and lack of credit facilities to expand and grow further. There is a general misconception that loans to MSMEs produce more NPAs, which has been proven wrong from the following data.

Type Annual T.O. (Cr)

Crores

Cont to GDP Cont to Exports Overall credit

Exposure

(In Lakh Crores)

NPA

NPA in Amount

(In Lakh Crores)

Large >250 Cr 71.1 % 51 % 46.7 18.7% 8.7329
Medium 50-250 Cr  

 

 

28.9 %

 

 

 

49 % 

4.7 18.1% 0.8507
Small 5- 50 Cr 8.9 10.8% 0.9612
Micro < 5 Cr 4.6 8.9% 0.4094

                 

Source – Transunion CIBIL- MSME Report 2019-20

We can infer the following from the above table;

  • The % of NPAs from MSMEs is 12.2% as compared to Large enterprises’ 18.7%
  • The MSME’s contribution in Exports is quite large as compared to large enterprises concerning overall credit exposure.
  • They have 27.61 % of total credit exposure and their share in GDP is around 28.9%.

In the last few years, the government has brought many schemes to provide cheap and accessible credit facilities to this sector. We are going to tell you about various credit schemes available for them and how to apply for them.

Related Topic:

What are the benefits for MSME in India?

#1.  MUDRA LOAN SCHEME  PMMY(only for micro-units)

 

The Full form for MUDRA is  “Micro Units Development & Refinance Agency Ltd.”. It is a financial institution set up by the Government of India for the development of micro-unit enterprises and refinancing various other institutions providing finance to these micro-units. The purpose of MUDRA is to provide funding to the non-farm-based (non-agricultural) small business sector through various last-mile Financial Institutions like Banks, NBFCs, and MFIs. Under PMMY (Pradhan Mantri MUDRA Yojana) collateral-free loans up to 10 lakhs are being provided to entrepreneurs. They are mostly provided to new entrepreneurs or existing ones who want to start a new vertical in their business.

The loans provided by the financial institutions under MUDRA are covered under the NCGTC (National credit guarantee trustee company Ltd ) through their organization CGFMU (Credit guarantee fund for micro-units). Thus the funding to the financial institutions for further lending is provided by MUDRA and the credit guarantee is provided by other government organizations. The financial institutions are entrusted only with the job of disbursing and monitoring these loans. Mudra itself does not provide any loan. It only refinances the other financial institutions.

There are three categories of loans. 

SHISHU – Loans up to 50000

KISHORE– Loans above 50000 to 500000

TARUN– Loans above 500000 to 1000000

Under Pradhan Mantri Mudra Yojana (PMMY) more than 11.29 crore loans amounting to Rs. 6.41 lakh crore has been disbursed in the whole country in the last two financial years. At an overall level, the Shishu category of loan has about 66% of share among additional employment generated by establishments owned by MUDRA beneficiaries followed by Kishore (19%) and Tarun (15%) categories respectively.

This scheme was inaugurated on 8th April 2015. Consequently, all the loans falling under the above categories are classified as MUDRA loans under the PMMY. The application forms for such loans carry the name “Pradhan Mantri MUDRA Yojana”.  The desirous entrepreneur can approach any of the lending institutions (banks, NBFCs, or MFIs, etc) or can apply online through this portal wwwdotudyamimitradotin     

Eligible borrowers – There is no restriction with regard to the constitution of the enterprise (any legal person is eligible). He should not be a defaulter to any financial institution and should have a satisfactory credit track record. It would be an eligibility enhancing factor if the individual borrower possesses the necessary skills/experience/ knowledge/ education to undertake the proposed activity in an earnest manner.

Purpose of Assistance/Nature of assistance– The facility is provided in accordance with the need of the eligible borrowers for acquiring capital assets and/or working capital/marketing-related requirements. It can be in the form of an overdraft limit, CC limit, term loan, bank guarantee, etc. The MUDRA loans are provided for small businesses having the potential for income generation. They can be engaged in activities like manufacturing, processing, service sector, or trading. The loan is provided on the basis of the project cost, which is based on the business plan and the investment proposed. MUDRA loan is not for the consumption/personal needs. 

MUDRA CARD– For providing working capital, MUDRA has launched a new product called “MUDRA Card”, just on the lines of Kisan card having a specific withdrawal limit just like a Debit card. It is issued on the RuPay platform and it provides hassle-free credit in a flexible manner.

Margin/Promoters Contribution-  Margin/Promoters Contribution is necessary as per the policy framework of the bank, based on the overall guidelines of RBI in this regard. Banks may not insist on margin for Shishu loans.

Interest rate – Interest rates are to be charged as per the policy decision of the financial institution. (BLR + spread %) as per the institution. All the MLIs (member lending institutions like Scheduled Commercial Banks, RRBs, and Cooperative Banks) wishing to avail of refinancing from MUDRA will have to peg their interest rates, as advised by MUDRA Ltd. There was an interest subvention scheme of 2% for Shishu loans from May 2020 for 12 months.

Upfront fee/Processing charges. Banks may consider charging upfront fees as per their internal guidelines. Mostly the upfront fee/processing charges for Shishu loans are waived. 

Security of the loan – Following measures are available with the bank;

a) The financial institution has the first charge on all the assets created out of the loan extended to the borrower and the other assets which are directly associated with the business/project for which the credit has been extended.

b) DPN Properly stamped Demand promissory note (wherever applicable).

c) CGTMSE (Credit guarantee fund trust for micro and small enterprises, wherever felt desirable)/ MUDRA Guarantee cover. Regarding loans up to 10 lakh, banks are mandated not to accept collateral security from the Micro, Small Enterprises (MSE) Sector.

The tenor of Assistance-  It is based on the economic life of the assets created and also the cash flow generated by the economic activity. However, MUDRA’s loan assistance is provided for a maximum period of 36 months which is also aligned with the terms of allotment of MUDRA funds by RBI from time to time. 

Related Topic:
e Book of Schemes for Micro, Small and Medium Enterprises (MSMEs)

Repayment of Loan

  1. Term Loan– It is to be repaid in suitable installments with a suitable moratorium period as per the cash flow of the business. 
  2. OD & CC Limit: It is repayable on demand. It is subject to renewal and annual review as per internal guidelines of the Bank.

Documents  required

Documents required for availing of a Mudra Loan (individual) are:

  • Duly filled application form of Mudra Yojana
  • 2 passport size photos of the applicant
  • Identity Proof: Aadhaar Card, Valid Passport, Voter ID Card, Valid Driving License, and PAN Card.
  • Residence Proof: Utility (electricity, gas, or water) bill, Aadhaar card, Passport, Voter’s ID, Bank passbook, or latest bank account statement.
  • Proof of business existence: Certificate, License, registration, or any other documents confirming the business existence, address, and ownership.
  • Any document needed for proving the purpose of the loan like a) Quotation for a vehicle, b) Quotation for a machinery c) Quotation for some specific goods
  • Bank statement of the last one or two years.
  • CIBIL report  
  • Last two years ITR and Audited balance sheet.
  • If the project is new, then the project report, projected cash flows and projected income statement, and balance sheet

If the borrower is not an individual then documents regarding the constitution of the enterprise;

1  A company

  1. Individual documents of the directors as above
  2. Memorandum and articles of association
  3. Board resolution authorizing the director to sign the documents and deal with the financial institution.
  4. Two years audited financial statements and bank statement
  5. Two years ITR of the company.

 2  Partnership firm 

  1. Individual documents of the partners as above
  2. Partnership deed
  3. Letter of authorization on behalf of the firm.
  4. Two years audited financial statements and bank statement
  5. Two years ITR of the firm.

Related Topic:

MSME Schemes: Challenges

#2. SIDBI (Small Industries Development Bank of India)

 

SIDBI was established by an act of the parliament, through the Department of financial services, Govt. of India. It was formed with an imperative goal of financing, promotion, development, and sustainable growth of the (MSMEs). SIDBI’s primary objective is to strengthen the MSME sector by facilitating timely credit at cheap rates and without collateral. The bank assists MSMEs to get funds for;

  1. The development of their ideas and research into commercially viable business projects. 
  2. Advertising and marketing of their innovative technologies and products.
  3. Growth and expansion of their endeavors into new markets and verticals.

Key Features of SIDBI 

  1. Provision of  financial  support for growth and expansion of Small Scale Industries (SSIs)
  2. Provision of Seed Funding to MSME sector
  3. Discounting the bills of SSIs through Receivables exchange of India on TReDS portal
  4. Provides refinance to financial institutions, including banks, NBFCs & Small Finance Companies for further lending to MSMEs.
  5. Offers financial services, such as hire purchase, factoring, and leasing services
  6. Promotion of employment opportunities among SSIs
  7. Providing assistance in the form of funds, technological know-how, and documentation in exports
  8. Bank loans to women and marginalized groups of people
  9. Providing counter-guarantee for loans to MSMEs from various other institutions through different schemes of CGTMSE

Benefits of availing business loans from SIDBI

  • Funds at cheaper interest rates than other banks and NBFCs
  • Bespoken credit and loans schemes according to the industry and enterprise
  • Almost Collateral Free loans
  • Customized funding for MSMEs
  • Subsidies on interest rates on various schemes
  • Transparent funding process
  • Capital growth for business owners
  • Complete and sound financial advice provided by relationship managers

Various schemes of SIDBI 

(A) (SHWAS) ASSISTANCE TO HEALTHCARE SECTOR IN WAR AGAINST THE SECOND WAVE OF COVID19 

This scheme is for MSMEs engaged in the manufacturing and transportation of oxygen and oxygen-related equipment. 

Eligibility criteria

  • For existing Customers – Cash profit in last audited balance sheet (i.e. FY 2020)
  • For new customers to SIDBI – Cash profit in the last two years.
  • Credit track record with existing Bankers / FIs should be satisfactory

The loan amount and interest rate

  • Term Loan – purchase of equipment/machines
  • Working Capital Term Loan – purchase of raw materials or executing confirmed orders
  • Maximum: 200 lakh
  • RoI:4.50%-5% p.a.

Other aspects 

  • Repayment period   Term Loan – up to 60 months   WCTL – Up to 18 months
  • Moratorium up to 12 months included in both the periods

Application

  • One Page Application
  • Standard KYC checks and due diligence
  • The sanction was given within 48 hours post receipt of mandatory information

Documentation/ Disbursement

  • Simple Loan documentation
  • Direct payment  made to the supplier for purchase of equipment/machinery / MFAs and raw material

Key attractions

  • Up to 100% finance
  • Nil processing fee
  • Attractive Interest Rates
  • Credit Guarantee option also available under CGTMSE   (Charges to be borne by SIDBI)

(B)  (AROG)  ASSISTANCE TO MSMEs FOR RECOVERY & ORGANIC GROWTH DURING COVID19 PANDEMIC

  • This loan is provided to MSMEs engaged in manufacturing products or providing services that are directly related to fighting covid-19, such as Pulse Oximeters, Permitted drugs, Ventilators, PPEs, etc.
  • All the conditions and amount of disbursal is the same

(C)  (TWARIT)  TIMELY WORKING CAPITAL ASSISTANCE TO REVITALISE INDUSTRIES IN TIMES OF CORONA CRISIS

The objective of this scheme ECLGS (Emergency credit line guarantee scheme) is to provide needed relief to MSMEs (existing customers), whose operations are hampered by COVID -19

 (D) (SAFE PLUS) ASSISTANCE TO FACILITATE EMERGENCY RESPONSE AGAINST CORONAVIRUS – PLUS

This loan is provided to meet any emergency / additional working capital requirement of all existing MSMEs having confirmed order(s) from Central/ State Govt./ Govt. agencies, nominated for this purpose and who are manufacturing any products or providing any services which are directly related to fighting Corona Virus (Covid-19). Valid up to 31.3.2021

(E)  (SAFE)   ASSISTANCE TO FACILITATE EMERGENCY RESPONSE AGAINST CORONAVIRUS

This scheme is to finance all existing MSMEs who are manufacturing any products or providing any services directly related to fighting Corona Virus. The maximum amount of loan given is Rs 50 lakhs.

(F)  (STAR) LOAN ASSISTANCE FOR ROOFTOP SOLAR PV PLANTS

To enable MSMEs to install their Solar Panels / Equipment (Including all accessories) procured from established suppliers, manufacturers, aggregators, etc. 

Loan amount – 10 to 250 lakhs

Interest rate– 9.1% – 10.2 %

Installation capacity– 25 KW to 500 KW

(G)  (TULIP)  TOP-UP LOAN FOR IMMEDIATE PURPOSES (TULIP)

This loan is provided for the purchase of machinery/equipment required in civil construction/renovation. It can be used to acquire DG (Diesel generator) set/other MFAs (material flow analysis including testing equipment, dies & molds, etc.). It is provided to execute sudden/specific/bulk orders which are self-liquidating in nature and are against a minimum BBB-rated counterparty or having a state / central government department as a counterparty with a good track record in making timely payments.

Loan amount – 30% of existing exposure or 20% of net sales subject to Max ₹2 Crore

Interest rate – 10.00% to 11.00% p.a.

(H)  (SPEED PLUS) LOAN FOR PURCHASE OF EQUIPMENT FOR ENTERPRISE’S DEVELOPMENT PLUS 

The loan is provided for acquiring plants and machinery. It has to be purchased from identified OEMs (original equipment manufacturer) manufacturing high-end machines, or authorized dealers / Indian subsidiaries of such foreign OEMs, which have strong goodwill, brand value and with whom SIDBI has entered into an MoU

Eligible Expenditure

  • Proposed machinery should be used in the same line of business in which the enterprise is already engaged.
  • 2nd hand/ refurbished machines are not eligible

Eligibility of enterprise

  • Operating MSME units with at least 5 years of operations having stable sales with cash profits in the immediate past 3 years
  • Minimum net sales of ₹ 5 crores and no operating loss in the immediate past two years

Loan amount

  • For new to SIDBI customers – Up to 100% of the machinery cost (subject to a maximum of ₹2 crores, based on 20% – 30% of FD) 
  • For existing customers of SIDBI -Up to ₹3 crores (based on 15% – 30% FD)

Interest Rate

  • 8.80% to 10.50% p.a.

(I)  (SPEED) LOAN FOR PURCHASE OF EQUIPMENT FOR ENTERPRISE’S DEVELOPMENT

This loan is provided for the purchase of new machinery (in congruence with the existing business of the enterprise) from OEM.

For customers, new to the bank – Machinery should be purchased from the OEMs with whom SIDBI has an MoU. Presently there is an MOU of SIDBI with 8 OEMs.

For Existing Customer- Any OEM

Eligibility of the enterprise

  • Operating MSME units with at least 3 years of operations having stable sales and cash profits in the immediate past 2 years.

Loan amount

  • For customers, new to SIDBI – Up to 100% of the machinery cost, subject to a maximum of ₹1 crore 
  • For existing customers of SIDBI – Up to ₹2 crore. SIDBI reserves the right to sanction a lower amount depending upon an assessment of repayment capacity.

Interest rate

  • 9.25% to 10% p.a.

(J) Working Capital Loan (Cash Credit)

It is available for MSMEs, who have outstanding Term loans from SIDBI or propose to avail both TL & WC from SIDBI. Along with the option to choose a banking platform from 2-3 banks. Seamless and single-window approvals as per customer instructions for setting DP (Drawing Power) etc. 

Eligibility parameters

This facility shall be considered for any of the following categories of customers.

  • Existing customers of SIDBI who are solely banking with SIDBI (including enhancement).
  • Existing customers of SIDBI, who are also banking with other banks.
  • Existing well-performing units having TL facility from SIDBI, but do not enjoy WC facility with any other banks.
  • New entities, who have applied for the term loan from SIDBI.
  • The takeover of working capital accounts in other banks is subject to compliance with takeover guidelines.

Financial parameters

Satisfying minimum financial parameters under the scheme.

Parameters Eligibility Norm
Total outside liabilities/ tangible Networth (TOL/TNW) Not to exceed 4:1
Current Ratio 1.25
Interest Coverage Minimum 1.5 times
Overall Asset Coverage Existing units-1.3

New units-1.4

Internal Rating As per the existing bank norms

 

(K)  Loan under a partnership with OEM

This loan is for enabling MSMEs to purchase machines from OEMs with whom SIDBI shall arrange Financial tie-ups at the time of placing of order. CGTMSE cover is provided for the loan.

Eligibility criteria

  • MSME entities should be operational for at least 3 years having a satisfactory financial position.
  • Investment in Plant & Machinery –  It should be purchased from respective OEMs.

Loan amount

  • Generally, up to ₹ 100.00 Lakh. But higher amounts would be considered on case to case basis at the discretion of the bank

Interest rates

  • As per SMILE.

(L) (SMILE) SIDBI MAKE IN INDIA SOFT LOAN FUND FOR MICRO SMALL AND MEDIUM ENTERPRISES

Key Features

  1. Competitive interest rates.
  2. Funding will be a part of Promoter’s contribution by way of soft loans.
  3. The longer repayment period and quick disbursal
  4. The prominence will be given to new enterprises in the manufacturing as well as services sector.

Eligibility Criteria

  • The importance will be given to financing smaller enterprises within MSME.
  • Also, for existing customers undertaking expansion in different verticals, to take advantage of new emerging technologies and opportunities, undertaking modernization by technology and machinery up-gradation, or other projects for growing their business.
  • Minimum Loan Size – For Equipment Finance –  10 lakhs
  • For other purposes: ₹ 25 lakh.

Tenure and moratorium

  • Loan repayment period up to 10 years including moratorium of up to 36 months.
  • Margin-Minimum contribution by promoter 15% subject to Maximum DER (debt to equity ratio) of 3:1

Security

  • A first charge over all assets created under the project.
  • Personal guarantee of the promoter(s).
  • Cases involving term loans up to ₹ 2 crores may be covered under the Credit Guarantee Scheme of CGTMSE is applicable.
  • ACR and FACR norms would be applicable in terms of the extant Loan Policy.
  • Residual charge over the entire assets.
  • Personal Guarantee of the Promoter(s).

Related Topic:

MSME Registration at Udyam Portal is Child’s Play Now

#3. Formation of funds in the form of trusts to provide a counter-guarantee (credit guarantee)

 

The government has formed various credit guarantee funds in the form of trusts to provide counter guarantees to the financial institutions so that they can provide loans to the MSME sector wholeheartedly, without any hesitation sans any collateral from them.

They are;

CGTMSE  Credit guarantee fund Trust for micro and small enterprises 

NCGTC     National credit guarantee trustee company ltd.

(A) CGTMSE 

This fund is the joint endeavor of the Ministry of MSME, Govt. Of India and SIDBI. This fund was envisaged to expedite institutionalized credit facilities to micro and small enterprises. Over the past couple of decades, CGTMSE has been conducive in providing counter-guarantee cover for collateral or third-party guarantee-free, credit facilities extended by eligible Member Lending Institution [MLIs] to MSEs.

Gradually but surely, as the government has understood the importance of MSMEs for employment generation and wealth creation, it has increased its focus and dedication on MSE lending. CGTMSE has undergone a complete overhaul since 2017 to expand the scope of its schemes to the previously uncovered segments like Partial collateralized loans, Retail Trade, etc.

It has also brought uncovered lenders like NBFCs and Small Finance Banks and Scheduled Co-Operative Bank under its umbrella of MLIs. It has embraced technology as its operational partner to achieve this huge scale and the entire operations are carried out online including NPA marking and claim settlements. It’s the trust’s unwavering commitment to engaging in constant technology up-gradation for enhanced ergonomy, better customer services, and satisfaction.

CGTMSE will provide a guarantee against any collateral / third party guarantee free credit facility (both fund as well as non-fund based) extended by the MLI to Manufacturer/ Service Provider/ trader/existing/new, with a maximum credit limit of  200 lakh (Rupees two crores only). 

To alleviate the security concerns of the MLIs a new “Hybrid Security” (partial collateral) product has been launched to allow guarantee cover for the remaining portion of the credit facility which is not covered by the collateral security. In this unique security model, the MLIs are instructed to not demand the full value of the collateral, whereas the remaining portion of the credit facility, up to a maximum of  200 lakh, will be covered under CGTMSE. It will instill confidence both in the minds of the lender and the borrower. The lender will feel secured towards its funds and the borrower will feel that someone has kept a hand of comfort over his shoulder. CGTMSE will have an equal charge on both the primary security and the collateral security provided by the borrower for obtaining the credit facility.

The imperative objective is that the lender should give his full thrust to project viability and keep it operational. He should secure the credit facility purely on the strength of the primary security of the assets financed. 

The secondary objective is to persuade the MLI, who is availing guarantee facility from CGTMSE, to give composite credit to the borrowers. Such that the borrowers can obtain both term loan and working capital facilities from a single agency and the funds of the borrowers are not diverted during repayment to some other lender. The Credit Guarantee Scheme (CGS) ensures the lender that, in the event of an MSE unit, which availed collateral-free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 50/75/80/85 percent of the credit facility according to the table given below;

Category of the borrower The maximum amount of Guarantee available to the lender where credit facility is ;
  Up to 5 lakh Above 5 lakh up to 50 lakh Above 50 lakh up to 200 lakh
Micro Enterprises 85% of the amount in default subject to a maximum of  4.25 lakh 75% of the amount in default subject to a maximum of  37.50 lakh 75% of the amount in default subject to a maximum of  150 lakh
Enterprises owned by women/ Units located in North East Region (incl. Sikkim) (other than credit facility up to  5 lakh to micro-enterprises) 80% of the amount in default subject to a maximum of  40 lakh
All other categories of borrowers 75% of the amount in default subject to a maximum of  37.50 lakh
Activity From 10 lakh up to 100 lakh
MSE Retail Trade 50% of the amount in default subject to a maximum of  50 lakh

 

According to the CGTMSE portal, the following benchmarks were achieved in F/Y 2020;

  • 45851 crores of total guarantees were approved.
  • Annual growth of 52% in the coverage amount of guarantees given.
  • 16103 crores of guarantees were approved in the newly introduced sectors- Retail and Hybrid.
  • 17349 crores of guarantees were approved for newly inducted 23 NBFCs.

(B) NCGTC

National Credit Guarantee Trustee Company Ltd [NCGTC] is a special purpose vehicle devised by the Department of Financial Services, Ministry of Finance, Government of India to, act as a nodal trustee company to operate, manage, and oversee various credit guarantee trust funds under its umbrella. We are giving you details of two such funds which are engaged in providing guarantees to MLIs for the loans given to MSEs.

Funds working for MSEs under the trusteeship management of NCGTC:

1) Credit Guarantee Fund for Micro Units (CGFMU)

This fund provides guarantees for loans up to the prescribed limit (currently ₹ 10Lakh) sanctioned by Banks / NBFCs / MFIs / other financial institutions engaged in providing credit facilities to eligible micro-units e.g PMMY (MUDRA). Moreover, Overdraft loan amount of ₹ 5,000/- sanctioned under PMJDY(Prime Minister Jan Dhan Yojna) accounts shall also be eligible to be covered under this Credit Guarantee Fund.

2) Credit Guarantee Fund for Standup India (CGFSI)

This fund gives guarantees for credit facilities of over ₹ 10 lakh & up to ₹ 100 lakh sanctioned by the MLIs, to eligible borrowers under the Stand Up India Scheme. 

The sole aim of the Stand-Up India scheme is to provide bank loans, to at least one Scheduled Caste (SC) or Scheduled Tribe (ST) borrower and at least one woman borrower per bank branch for setting up a greenfield enterprise ( Eco friendly). This enterprise may be in manufacturing/ services/agriculture-related activities/ the trading sector. If the constitution of the enterprise is a company, then at least 51% of the shareholding and controlling stake should be held by either an SC/ST or Woman entrepreneur. 

Related Topic:

Udyam Registration – Eligibility, Process, Documents Required, and Certificate

#4. CLCSS (Credit linked Capital subsidy scheme)

 

This scheme has been introduced with the vision of technology up-gradation of all the MSMEs so that they raise themselves to the global standard and remain competitive.

 According to this scheme, an upfront capital subsidy of 15 percent (on institutional finance of up to Rs 1 crore availed by them) is being provided. The newly acquired plant and machinery should be of well-established credentials and improved technology in the specified 51 sub-sectors/products approved and should be procured from OEMs having an agreement with the MLI. The government wants that the MSEs should understand the importance of having upgraded plants & machinery with state-of-the-art technology. It can be achieved with or without expansion of the existing production capacity and methodology. 

This scheme is also applicable for new MSMEs which have set up their facilities with appropriate, eligible, and proven technology duly approved under scheme guidelines. This would enable them to produce global-level products at competent prices. A list of applicable technologies is available at www.dcmsme.gov.in

Related Topic:
MSME Loans – Sailent Features

#5. CGSSD (Credit guarantee scheme for subordinate debt)

 

The name of the scheme is  ‘Distressed Assets Fund – Subordinate Debt for Stressed MSMEs’. The counter-guarantee for the loan provided under this scheme would be given from ‘Credit Guarantee Scheme for Subordinate Debt (CGSSD)’ which comes under CGTMSE.

Purpose

The sole purpose of this loan is to restructure the NPAs or Stressed assets in a holistic manner such that promoters of such enterprises remain interested in keeping the enterprise operational. It is in the best interest of all the stakeholders that the enterprise should remain running. They should work harder with the help of newly infused liquidity with the mission of again upgrading their enterprise into the category of standard assets.

Loan eligibility and conditions

  • Those MSMEs whose accounts were in the standard category as of 31.03.2018 and were in regular operations, either as standard accounts or as NPA accounts during the financial year 2018-19 and financial year 2019-20, would be eligible.
  • Fraud/ Willful defaulter accounts will not be applicable.
  • There is no restriction due to the constitution of the enterprise.
  • Those MSME units that are under stress, viz. SMA-2 and NPA account as of 30.04.2020, and those who are eligible for restructuring as per RBI guidelines on the books of the MLIs would be considered.

Loan type 

Personal Term Loan to the Promoter, which would be infused in the unit as an equity                                          Security cover for the said loan – 90% guarantee coverage would come from the scheme/ Trust and the remaining 10% from the concerned promoter(s). The objective of the scheme is to infuse liquidity into the stressed MSMEs as equity / quasi-equity in the business eligible for restructuring, as per RBI guidelines for restructuring of stressed MSME advances. 

Loan Amount

  • The Promoter(s) of the MSME unit will be eligible for the loan amount, that is equal to 15 % of his/her stake (equity plus debt) in the MSME, or Rs 75 lakh, whichever is lower as per the last audited balance sheet.
  • The new loan amount shall not exceed the original debt of the beneficiary MSME Unit.
  • This sub-debt loan is given along with the restructuring of the main facility only.

Related Topic:

FAQ’s on Udyog Aadhar, MSME benefits, and Registration

#6. Equity infusion for MSMEs through fund of funds

 

The honorable finance minister had announced the inauguration of an ambitious program of providing liquidity to the MSMEs through the equity route. To fulfill this endeavor she proposed the formation of a fund that has an initial corpus of 10000 crores. This Fund of Funds announced by her in May 2020 as part of the Atmanirbhar Bharat will be operationalized soon and has the mission of infusing 50000 crores in the MSMEs as equity.

The MSME minister clarified that if the MSMEs decide to get themselves registered on the bourses, then the government is keen on acquiring up to 15 % Equity of these enterprises. Around 25 lakhs of MSMEs would be benefitted from that.

#7. MSME loan for Start-Up in 59 minutes

 

psbloansin59minutesdotcom

This scheme is a spectacular initiative taken by SIDBI and member Public sector banks.

  • This initiative aims at automation and digitization of various processes of disbursing a Business Loan (Term Loan, Working Capital Loan, and Mudra Loan) in such a manner that a borrower is provided with an In-principle approval letter in less than 59 minutes. 
  • The borrower will have the flexibility to choose the lender.
  • The number of loans, with /without collateral, are currently provided for value from INR 1 Lac to INR 5 Crores. The approval for Mudra Loan is currently provided for  INR 10,000 to INR 10 Lacs.
  • Rate of Interest – 8.5% onwards. 
  • psbloansin59minutesdotcom.The guarantee and eligibility for this loan are provided by CGTMSE on case to case basis.

The application process for applying for a business loan (in-principle approval) 

  • Click on www.psbloansin59minutes.com. 
  • Then register yourself using Name, Mobile Number, and Email Id
  • Post-registration, the borrower can select funding requirements i.e. for business purposes or for retail. 
  • Select “Business Loan”. 
  • After selecting the type of loan, give the required details to avail business loan in-principle approval within 59 minutes. 

Documents to be uploaded

  • GST identification number and legal name of the enterprise
  • Income Tax returns of the enterprise or owners/Directors in XML format
  • Bank statement of the enterprise of last six months in PDF format
  • Details of the owners/ directors- Basic, personal (Adhar number, PAN no., DIN no. ITR details, etc.), financial, education, and ownership details.
  • Receive In principle approval letter in less than 59 minutes

Your loan eligibility is determined by your: 

  •  Income/ Revenue 
  •  Repayment Capacity 
  • Existing Credit Facilities 
  • Any other Factors as set by Lenders
  • All the due diligence and documentation procedure will be done by the lender bank before giving the loan. The applicability of CGTMSE  will depend upon the purpose and amount.

#8. Start-Up India

 

Eligibility of the enterprise

  • The existence and operations of the enterprise should be less than10 years from the Date of Incorporation.
  • Their constitution can be a Private Limited Company, a Registered Partnership Firm, or a Limited Liability Partnership.
  • It should have an annual turnover of less than Rs. 100 crore for any of the financial years since its Incorporation.
  • It should not be a result of splitting up or reconstructing a pre-existing business. It should be an entirely new project from scratch.
  • It should work towards the development or improvement of a product, process, or service and/or have a commercially viable business model that can be scaled up for a larger output with high prospects for the creation of wealth & employment. They should have the capacity to become rising stars.

Registration with DIPP and DPIIT

They should get themselves registered with DIPP(Department of Industrial policy and promotion) and DPIIT (Department for Promotion of Industry and Internal Trade).

Benefits

  • This would enable them to get exemption from angel tax, exemption from income tax for three years (in a block of 7 years), and some other tax benefits( upon fulfillment of certain conditions)
  • The regulatory burden on Startups has been reduced considerably so that they can concentrate fully on their core business and keep compliance costs low.
  • They will be given relaxation in various labor and environmental laws 
  • They will be able to participate in the various schemes launched by the government in different segments for availing of cheap and accessible credit, technological know-how, and other operational incentives. 
  • They will be given help in getting their innovation patented and waived from many types of fees.
  • Guarantee cover for the loan availed will be given by NCGTC/CGTMSE.

Conclusion

As you know the cost of debt is always less than the cost of equity. But debt as capital comes with many constraints and riders. The time period of repayment, payment of interest, and allied compliances are fixed. Whereas there is no such bondage with equity. Since the profitability of a new business is uncertain, therefore the entrepreneur always looks for equity rather than debt. Nonetheless, the government has shown its intent in its commitment towards MSMEs and brought forward many new incentives and credit schemes.

Profile photo of Consultease Administrator Consultease Administrator

Consultant

Faridabad, India

As a Consultease Administrator I'm responsible for smooth administration of our portal. Reach out to me in case you need help.

Discuss Now
Opinions & information presented by ConsultEase Members are their own.