Explore the Emergency Credit Line Guarantee Scheme (ECLGS), a government initiative to support businesses during emergencies. Learn about the goals and benefits of the ECLGS, facilitating credit access.

1. The Emergency Credit Line Guarantee Scheme (ECLGS) is a scheme launched by the Indian government in May 2020 as part of the Atma Nirbhar Bharat package to provide financial assistance to Micro, Small, and Medium Enterprises (MSMEs) that have suffered due to the COVID-19 pandemic. The scheme provides a guaranteed emergency credit line (GECL) facility for additional funding of up to Rs. 3 lakh crore to eligible borrowers. 
2. The National Credit Guarantee Trustee Company (NCGTC) provides 100% guarantee coverage in the form of a GECL facility to Member Lending Institutions (MLIs) on loans given to eligible MSMEs.
3. The credit under GECL is up to 20% of the borrower’s total outstanding credit up to Rs. 25 crores, excluding off-balance sheet and non-fund-based exposures, as on 29th February 2020, subject to the borrower meeting all the eligibility criteria. 
4. The scheme is valid up to December 31, 2021, and disbursement is permitted until that date or until an amount of Rs. 3 lakh crore is sanctioned under the GECL Scheme by all banks/NBFCs, whichever is earlier.
5. The scheme aims to provide much-needed relief to the MSME sector by incentivizing MLIs to provide additional credit at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses

What Is the Modified Emergency Credit Line Guarantee Scheme (ECLGS) 3.0?

1. The original emergency credit line guarantee scheme has been launched with effect from 1 June 2020. This was a part of the government’s ₹20 lakh crore scheme of financial incentives
2. The scheme focuses on uplifting the Indian economy, with special incentives for poor and small businesses affected by the pandemic
3. As part of this, ₹3 lakh crores has been set aside to ensure that MSMEs: https://msme.gov.in/ borrowers aren’t troubled by lack of collateral security in availing bank loans
4. The amount of loan availed under this scheme is entirely guaranteed by the National Credit Guarantee Trustee Company. This is a wholly-owned company of the government of India
5. The scheme was originally valid until October 2020 and was later extended in November 2020. This was done in line with the Atma Nirbhar Bharat vision 3.0
6. The sectors it originally applied to were 26 stressed sectors as identified by the KV Kamath committee
7. The modified version of the scheme called the emergency credit line guarantee scheme (ECLGS) 3.0 was launched recently, on 1 April 2021.

What New Sectors Does the ECLGS 3.0 Plan Cover?

The government has added three new sectors to the ECGLS. These new sectors are:

• Hospitality 
• Travel 
• Tourism 

As a result, businesses in these areas that match the eligibility criteria listed below may be eligible for additional loans under the plan.

Eligibility of ELCG Scheme

With the introduction of the expanded Emergency Credit Line Guarantee Scheme (ECLGS), the eligibility criteria have been outlined as follows:

Turnover and Outstanding Loans

• Enterprises with a turnover of up to Rs. 250 crores (as per FY 2019-20) are eligible.
• The outstanding loans of the enterprise should be up to Rs. 50 crores as of February 29, 2020.

Credit Limit

• The GECL (Guaranteed Emergency Credit Line) credit provided will be up to 20% of the borrower’s total outstanding credit as of February 29, 2020.

Maximum Loan Amount

• The maximum loan amount that can be availed under the scheme is Rs. 5 crores.

Loan Tenure and Moratorium

• The initial loan tenure is for 4 years, and there is a moratorium period of 1 year on the principal amount. It’s important to note that the loan tenure has been extended to 5 years.

Interest Rates:

1. 1. Interest rates under ECLGS are capped at:
   2. 9.25% for Banks and Financial Institutions.
   3. 14% for Non-Banking Financial Companies.

Guarantee Fee

• The National Credit Guarantee Trustee Company Ltd (NCGTC) is prohibited from charging any Guarantee Fee from the Member Lending Institutions included under this scheme.

Revised Terms

• The details provided are based on the latest available information. It’s advisable to check the official announcements or contact relevant authorities for the most up-to-date information regarding the Emergency Credit Line Guarantee Scheme.

Benefits of ELCG Scheme

The Emergency Credit Line Guarantee Scheme (ECLGS) offers several benefits to Micro, Small, and Medium Enterprises (MSMEs) and other eligible borrowers. Here are the key benefits of the scheme:

1. 100% Credit Guarantee: The scheme provides a 100% credit guarantee for businesses seeking additional working capital term loans of up to 20% of their total credit outstanding.
2. Additional Funding: Eligible borrowers can access additional funding of up to Rs. 3 lakh crore to manage operational expenses, streamline cash flow issues, and tide over liquidity crunch.
3. Affordable Interest Rates: The interest rate on loans is capped by the RBI at benchmark rates + 1%, subject to a maximum of 9.25% per annum, making these loans significantly affordable.
4. No Processing Fee or Guarantee Charges: Borrowers are not required to pay any loan processing fee or guarantee charges, and there are no foreclosure penalties.
5. Moratorium Period: The availability of a moratorium period allows small enterprises to focus on getting the business back on track without having to worry about immediate repayments.
6. 100% Guarantee Coverage: The entire funding provided under the Guaranteed Emergency Credit Line (GECL) is covered by a 100% credit guarantee by the National Credit Guarantee Trustee Company (NCGTC) under the scheme.
7. Loan Tenure: The scheme offers a flexible loan tenure, including moratorium periods and repayment periods, to suit the needs of the borrowers.

These benefits aim to mitigate the economic distress faced by MSMEs and other eligible borrowers, providing them with the necessary financial support to navigate the challenges brought about by the COVID-19 pandemic and its economic impact.

Application Process of ELCG Scheme

1. Eligibility Check:

• Ensure that your business enterprise/MSME meets the eligibility criteria.
• Combined outstanding loans should be up to Rs. 25 crore as of 29.2.2020, with an annual turnover of up to Rs. 100 crore for FY 2019-20.

2. Account Status Check:

• Borrower accounts should be less than or equal to 60 days past due as of 29th February, 2020.
• Accounts with NPA or SMA-2 status as of 29.02.2020 are not eligible.

3. GST Registration:

• Business enterprises/MSMEs must be GST registered where mandatory.

4. Credit Limit Calculation:

• Determine the credit limit, up to 20% of the borrower’s total outstanding credit, subject to a maximum of Rs. 5 crores.

5. Interest Rate Consideration:

• Understand the interest rate, which is external benchmark linked rates +1%, capped at a maximum of 9.25% per annum.

6. Government Guarantee:

• Note that the entire funding under GECL is covered by a 100% credit guarantee by NCGTC.

7. Repayment Terms:

• Be aware of the repayment terms, with a maximum tenure of 4 years from the disbursement date.
• A one-year moratorium on the principal amount, with interest payable during this period.
• Repay the principal in 36 equal installments after the moratorium.

8. Scheme Validity:

• Keep in mind that the scheme is valid till 31.10.2020 or until Rs 3,00,000 crore is sanctioned under the GECL Scheme by all banks/NBFCs, whichever is earlier.

9. Processing Fee and Penalties:

• Note that there is no processing fee or pre-payment penalty.

10. Application Submission:

• Visit the ECLGS website for detailed guidelines and initiate the application process.
• Ensure compliance with the outlined criteria and follow the steps for a successful application under the Guaranteed Emergency Credit Line (GECL) scheme. For further details, refer to the NCGTC guidelines on the ECLGS website.

Scope of Emergency Credit Line Guarantee Scheme

The Emergency Credit Line Guarantee Scheme (ECLGS) has been expanded to include hospitals, nursing homes, clinics, and medical colleges for setting up on-site oxygen generation plants. The scheme provides a 100% guarantee coverage by the National Credit Guarantee Trustee Company (NCGTC) to Member Lending Institutions (MLIs) on loans up to Rs. 2 crore to eligible Micro, Small, and Medium Enterprises (MSMEs) and other borrowers.

The scheme offers a flexible loan tenure, including moratorium periods and repayment periods, to suit the needs of the borrowers. The scheme also aims to provide much-needed relief to the MSME sector by incentivizing MLIs to provide additional credit at low cost, thereby enabling MSMEs to meet their operational liabilities and restart their businesses.

Aim of Emergency Credit Line Guarantee Scheme

1. The Emergency Credit Line Guarantee Scheme (ECLGS) offers a spectrum of benefits to diverse entities. It supports term loans, facilities, and letters of credit, fostering financial inclusion and poverty reduction.
2. Through this scheme, working capital loans empower businesses, while health and nutrition improvements enhance community well-being. ECLGS facilitates education support, skill development, and employment opportunities, contributing to holistic empowerment. 
3. The scheme particularly emphasizes the upliftment of women, alongside promoting housing and sanitation improvements.
4. Additionally, it ensures social security, grants access to government programs and services, and promotes digital literacy, fostering technology adoption for a more resilient and inclusive economic landscape.

Disbursement Deadline for ECLGS 3.0 Extended

1. The government, in line with its commitment towards helping businesses tide over financial emergencies during covid, has also extended the period of application for assistance under the scheme.
2. Now, businesses in need of working capital can apply for availing of loans under the scheme until 30 June 2021. However, this is subject to ₹3 trillion being disbursed, so if that benchmark is reached sooner, the scheme may be withdrawn. Thus, businesses in need of this collateral-free loan guarantee must apply at the earliest. 
3. Vakilsearch’s financial experts can help ascertain your businesses’ need and help you avail of services under the ECLGS 3.0 at the earliest. 

Rate of Interest Under the Scheme

1. For loans availed from banking institutions, the rate under the scheme has been capped by RBI at 9.25% per annum. 
2. For loans availed from NBFCs, the rate under the scheme has been capped at 14%. 

How Much Extra Loan Can be Availed Under the Emergency Credit Line Guarantee Scheme?

The maximum limit of loans that can be availed under the scheme has been capped at upto 20%. Thus, if a borrowing company or individual has existing loans of 25 crores, the maximum extra credit that can be taken under the scheme is ₹5 crores. Since banks decide the final loan to be given, an upper limit of 20% may not guarantee that the individual or company will get an additional loan of 20%. The bank may choose to extend a lesser amount of loan to the borrower. 

Duration of Repayment of Loan Under the ECLGS 3.0

For all categories of loan takers – individual or company/partnership businesses, the overall repayment period under the scheme is now six years. This limit, however, is subject to a moratorium period of two years on the payment of the principal component of the loan. The principal amount of the loan needs to be paid in 36 instalments after the initial moratorium is over. The interest however becomes payable from the date on which the loan has been taken. This is unlike the previous version of the ECLG scheme, which had a repayment period of five years and a moratorium period of one year only. 

Process of Availing Loan Under the Emergency Credit Line Guarantee Scheme

1. The scheme is offered as a “pre-approved loan”. Thus, the banking institution or NBFC from where the initial loan has been taken can be approached for availing benefits under the scheme.  
2. Additionally, banks will also offer this loan in a pre-approved format to eligible borrowers, who may choose to avail or opt-out of the scheme.

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