Know about the government financial schemes for Small Businesses
After our economy suffered the blow of COVID 19, most of the MSMEs were in dire need of financial assistance in order to lift themselves up and rebuild. This is why the Government of India announced several financial schemes to revive the overburdened MSMEs of the country. We have curated and put together important information about three different schemes that would benefit all business owners from our recent webinar on "The schemes announced by the Government for stressed MSMEs during the COVID period."
Let's have a look at these schemes and the benefits offered under each one of them.
Announcement of Rs.3,00,000 crore collateral-free automatic loans for businesses
- This scheme applies to MSMEs and traders both.
- MSMEs or traders who had a total credit limit of 25 crores as of 29th February 2020 are eligible for this loan. MSMEs with an annual turnover of up to 250 crores are also eligible for the same. This applies to SMA 1 or SMA 0 accounts only.
- The Guaranteed Emergency Credit Line is available only till 31st October 2020, in case the budget of 3 lakh crore is still available in the funds created.
- The business enterprise applying for a loan should be registered under GST if they are applicable for GST registration.
- The enterprise's total outstanding amount shall comprise the WC loans, terms loans, and WCTL loans.
- In the case of multiple lenders, an enterprise can approach different lenders to pay 20% of the amount each under this scheme. The lenders will thoroughly check the CIBIL score and other lending credentials to understand the total outstanding amount as on 29th February 2020.
- The total repayment period has been set to 4 years with a moratorium period of 1 year on the principal amount.
- No guarantee fees can be charged by the banks under this scheme.
Announcement of Rs.20,000 crore subordinate debt for MSEs
- This scheme is introduced specially for the stressed MSMEs which fall under SMA 2 or NPA as on 30th April 2020, but their account should fall under the standard category on 31st March 2020 since subordinate debt is a level above normal debt and is a part of your equity.
- The eligible loan amount under this scheme will be 15% of the promoter's stake or Rs. 75 lakhs, whichever is lower.
- This loan will be granted to the promoter, who will then invest in the MSME in the form of equity.
- The repayment schedule under this scheme is fixed by the lender but can't exceed a tenor of 10 years. There can be a moratorium of a maximum of seven years on the principal payment.
- The rate of interest on the loan will be based on the Reserve Bank's guidelines.
- All Public Sector, Private Sector, and Foreign banks are eligible to lend loans to stressed MSMEs under this scheme.
Announcement of Rs.50,000 crore equity infusion for MSMEs
- This scheme was announced on 13th May 2020 as a facility for growing companies.
- This Fund of Funds will be operated through a mother fund and multiple daughter funds.
- The Government will invest 10,000 crores in funds that will then multiply the amount and raise it to 50,000 crores to invest in enterprises that need aid.
- It will aid MSMEs to get listed on the main board of the Stock Exchange.
- The calculation of investments in plant, machinery, or equipment will be linked to the ITR of the previous years under the IT Act. All the tangible assets will be taken into account except land, building, furniture, and fittings.
- For new enterprises the calculation of these investments will be based on the self declaration and invoice value of the assets.
- All export turnover will be discarded. It will also be linked to your self-declaration and GSTIN till 31st March 2021.
Several Indian companies will benefit from the measures announced to combat the economic damage caused by the novel coronavirus pandemic. The Government also took the step of altering the definition of MSMEs by recognizing a larger array of enterprises under the segment that can avail these benefits and funds. The application of loans can be made on the government website itself.