How to Apply for Collateral-free MSME loans under the COVID-19 Relief Package by the Indian Government

 How to Apply for Collateral-free MSME loans under the COVID-19 Relief Package by the Indian Government

In May 2020, the Finance Minister, Ms. Nirmala Sitharaman, offered an economic stimulus under the ‘Aatmanirbhar Bharat’ initiative. Ms. Sitharaman spoke about INR 5.94 lakh crore liquidity support package for multiple sectors with a focus on the micro, small, and medium enterprises (MSMEs).

Six measures for MSMEs

  • Automatic loans for businesses

It offers an emergency credit line to MSMEs for an amount up to 20% of outstanding MSME loan as of February 29, 2020. Borrowers with a turnover of up to INR 100 crore and outstanding loan of up to INR 25 crore are eligible.

These loans will have a four-year tenure and a 12-month moratorium on principal repayment. The loan will be offered without additional collateral and guarantee fee with a cap on the interest.

  • Subordinate debt

The Government of India will offer INR 20,000 crore as subordinate debt to stressed MSMEs. Enterprises that are classified as Non-Performing Assets(NPAs) will be eligible for this scheme. The promoters will be provided loans, which will be infused as equity into the company.

  • Equity infusion via fund of funds (FoF)

Another measure of SME financing (small and medium enterprises) aims to help businesses overcome equity shortage. AnFoF with a corpus of INR 10,000 crore will offer equity funding to enterprises that are viable and show potential for growth. 

  • Revised MSME definition

The lower threshold of investment and turnover restricted the growth of such businesses due to the fear of being unable to meet the MSME loan eligibility criteria. The revised definition will enhance the investment limits as well as include turnover criterion while eliminating the distinction between service and manufacturing companies.

  • Disallowing global tenders

Often, MSMEs faced competition from global players while bidding for a project. Under this measure, global companies will be prohibited to bid for any tender up to INR 200 crore.This aims to offer support to the Make in India and Aatmanirbhar Bharat initiatives of the Narendra Modi Government.

  • Other measures

The COVID-19 pandemic has hampered liquidity and marketing. To replace trade exhibitions and fairs, e-market linkage will be offered to MSMEs. Additionally, fintech to enhance transaction-based lending via information generated on the e-marketplace. MSMEs will receive funds from the Central Public Sector Enterprises (CPSEs) and the Indian Government within 45 days.

How to take benefit of the COVID-19 relief measures

The automatic business loan scheme will be available until October 31, 2020, to all eligible businesses. The eligibility criteria for this MSME/SME loan include:

  • Total outstanding debt from all member lending institutions (MLIs) to not exceed INR 25 crore
  • Annual turnover for FY 2019-20 should be less than INR 100 crore
  • Available only for existing borrowers as reported in the books of MLIs
  • Loan account should be regular, SMA-0, or SMA-1, as on February 29, 2020
  • MSMEs should be registered for Goods and Service Tax (GST)

Procedure to apply for the loan

The process to avail of the benefits of the COVID-19 relief package is as follows:

  • If the borrower has existing loans from multiple MLIs, he or she may avail of funding from one institution or proportionately from each lender, as per the agreed terms and conditions
  • In case a borrower wants to seek finance for an amount exceeding the proportionate limit from one lender, he or she may require a No Objection Certificate (NOC) from other MLIs 

These loans are available from banks as well as other financial institutions like Mahindra Finance. Get ready to revive your business activities by seeking monetary assistance today!

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