Why GECL Loan Has Become Essential for Small Businesses in India?

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Why GECL Loan Has Become Essential for Small Businesses in India?

Over the last two years, the Covid-19 lockdowns have adversely affected business in India. However, Small & Medium-sized businesses or MSMEs have

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Over the last two years, the Covid-19 lockdowns have adversely affected business in India. However, Small & Medium-sized businesses or MSMEs have suffered the most from the pandemic. A scheme called Emergency Credit Line Guarantee Scheme (ECLGS), otherwise known as Guaranteed Emergency Credit Line or the GECL loan, has been introduced by the government of India to help these businesses out.

A GECL loan is part of a set of economic solutions for MSMEs that consists of a variety of solutions to help them meet their daily expenses. The GECL loan package is worth Rs.20 lakh crore. Designed primarily to help small businesses maintain a steady cash flow, credit line, and appropriate working capital levels.

Here are some additional MSME loan interest rate details:

  • GECLs are term loans that provide guaranteed emergency credit.
  • According to the Government of India, the GECL will be valid until 31/10/2020, and its value can reach a maximum of Rs. 3 lakh crore.
  • According to the government, small businesses in India who wish to take out or have taken out small business loans can benefit from the GECL. Specifically designed for use amid the Covid-19 pandemic, the National Credit Guarantee Trust Company launched it.
  • The GECL loan has a term of 48 months, and the borrower is required to pay only the interest amount in the first year, but in subsequent years, the principal amount is due along with the interest amount.
  • Certain criteria must be met to qualify for this credit facility, such as being a registered company or LLC or taking a previous MSME loan. Borrowers who want to take out a new loan should not use this service.

Borrowers are attracted to the GECL loan for the following reasons:

  • Collateral is not required for this loan
  • There are no fees associated with prepayment or foreclosure
  • Processing fees are zero
  • This loan has an MSME loan interest rate of 14% per year
  • Borrowers must be registered for GST before they can avail of this credit facility.

There isn’t a shortage of funds in the financial market to get funding for your small business in India, including loans from relatives, banks, crowdfunding platforms, angel investors, and working capital loans.

As an alternative, if you are not eligible for the GECL program, you can consider an unsecured business loan, which is one of the most efficient methods for obtaining funds for your business. Your business can grow and run smoothly if you receive your desired loan amount. Personalized deals help you expedite the loan process since they are easy to obtain and require less documentation.

As a result of the COVID-19 pandemic, the government launched the GECL, or the government emergency credit line, as a countermeasure to help MSME weather economic distress. Lenders are offering additional funding to existing borrowers to maintain jobs and enable the business to resume. A line of credit can only be received if the following criteria are met:

  • The scheme will apply to all Business Enterprise, and MSME borrower accounts with cumulative outstanding loans of up to Rs. 25 Crore across all Lenders as of 29th February 2020, and a turnover not exceeding Rs. 100 Crore for FY 2019-20.
  • The scheme is open to small and medium-sized businesses (SMEs) incorporated as partnerships, sole proprietorships, registered companies, trusts, and limited liability partnerships (LLPs).
  • No pre-existing loans qualify for emergency funding under the scheme unless they have a primary co-applicant.
  • The scheme does not cover loans provided by individuals.
  • Borrowers must not be more than 60 days past due as of 29.02.2020 to qualify for the scheme. The scheme is open to all borrowers who are not classified by any of the lenders as SMA 2 or NPA as of 29.02.2020.
  • In all cases where GST registration is required, Business Enterprises and MSME borrowers must be registered. This condition will not affect MSMEs and Business Enterprises that do not have to register for GST.

Due to this, if a borrower meets the above criteria, he can qualify to receive additional funding of up to 20% of his outstanding balance as of 29th February 2020, which the Government of India shall guarantee.

 

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