10 June 2024 | By INDIE
Businesses often face challenges in accessing much-needed funds to sustain their operations during economic uncertainty or unexpected crises. Recognizing this crucial need, governments around the world implement various support measures to stabilize economies. One such initiative taken by the Indian government is the Emergency Credit Line Guarantee Scheme (ECLGS).
The ECLGS scheme is a pioneering financial support program designed to provide vital liquidity assistance to businesses, especially micro, small, and medium enterprises (MSMEs), facing financial distress due to the pandemic's disruptions. It serves as a lifeline for businesses grappling with cash flow constraints, enabling them to meet operational expenses, pay salaries, and sustain their businesses. The Emergency Credit Guarantee Scheme aims to facilitate easy access to credit for eligible businesses, thereby supporting their survival and eventual recovery.
Let’s cover the Emergency Credit Line Guarantee Scheme and explore its objectives, eligibility criteria, and impact on businesses and the economy.
This Emergency Credit Line Scheme serves as a vital pillar of support for businesses during times of economic distress, with its primary objectives aimed at:
The scheme aims to address the liquidity crunch faced by businesses, particularly MSMEs, by offering them easy access to credit facilities like collateral-free loans backed by government guarantees.
ECLGS scheme safeguards jobs and livelihoods by enabling businesses to maintain operations and retain their workforce. The scheme helps prevent layoffs and ensures the continuity of employment, thereby mitigating the adverse socio-economic impact of the crisis.
ECLGS also aims to bolster the resilience of businesses affected by the pandemic and facilitate their eventual recovery. By providing timely financial assistance, the scheme empowers businesses to navigate through the challenges posed by the crisis, adapt to changing market dynamics, and emerge stronger in the post-pandemic landscape.
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Under the Emergency Credit Line Guarantee Scheme, eligible businesses can access term loans tailored to their specific needs and requirements. These loans do not require any collateral and provide businesses with a lump sum amount, which they repay over a specified period, typically through fixed monthly installments. Term loans are suitable for various business purposes, including working capital requirements, capital expenditure, expansion projects, and other long-term financing needs.
The eligibility criteria for accessing the benefits of the Emergency Credit Line Guarantee Scheme are structured to ensure the support reaches the businesses most in need while maintaining transparency and accountability. Here are the key factors determining eligibility under ECLGS:
The scheme primarily targets MSMEs, including sole proprietorships, partnership firms, limited liability partnerships (LLPs), and companies. Eligible entities may vary based on the specific guidelines issued by the implementing authority, typically the relevant government or financial institution.
Businesses must meet the prescribed turnover criteria to qualify for ECLGS assistance. Turnover thresholds may differ based on the classification of businesses as MSMEs as per the applicable regulations or definitions established by the government.
ECLGS may require businesses to demonstrate their operational continuity and financial viability, indicating their ability to effectively utilize the credit facilities and repay the borrowed funds as per the agreed terms. Businesses with a proven track record of operations and a sound business plan are typically favored under the scheme.
While ECLGS offers collateral-free loans backed by government guarantees, businesses are still subject to credit assessment by the lending institutions to determine their repayment capacity. Businesses with favorable credit histories and financial standings are more likely to qualify for ECLGS assistance.
Under the emergency credit line scheme, the interest rate charged on unsecured loans is fixed at 14% per annum. This per annum interest rate ensures transparency and consistency in the pricing of loans, providing businesses with a clear understanding of their borrowing costs.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
