Emergency Credit Line Guarantee Scheme - A boon to MSMEs

Micro Small and Medium Enterprises (MSMEs) with limited financial resources were gravely impacted by the pandemic. To allow small businesses to tide over the situation and alleviate financial uncertainty, the Government of India introduced the Emergency Credit Line Guarantee Scheme (ECLGS).

What is the ECLGS?

The Ministry of Finance – Department of Financial Services introduced ECLGS in February 2020 to offer a credit line to MSMEs who are struggling to make ends meet due to various economic issues. The Ministry earmarked funds to the tune of Rs 30,000 crore under the ‘Guaranteed Emergency Credit Line,’ which has now been extended to Rs 5 lakh crore till FY 2022-23, which will enable businesses to manage operational expenses, streamline cashflow issues and tide over liquidity crunch.

Features of ECLGS

The scheme is subdivided into three categories basis sector and the quantum of funds required. MSMEs have to send in an application within the relevant category, listed as follows.

ECLGS Scheme 1.0

It offers a 100% credit guarantee for businesses seeking additional working capital term loans of up to 20% (Rs 10 crore) of their total credit outstanding (up to a maximum of Rs 50 crore).

 48 months with a moratorium on principal repayment for 12 months

 36 equal instalments after the moratorium period is over

ECLGS Scheme 2.0

Offering similar benefits as ECLGS Scheme 1.0, ECLGS Scheme 2.0 helps borrowers in 26 sectors as specified by the Kamath Committee on Resolution Framework. With fund requirements ranging from Rs 50 to Rs 500 crore, these sectors include:

  • Power

  • Construction

  • Real estate

  • FMCG

  • Pharma 

  • Logistics

  • Gems and jewellery

  • Automobile

  • Aviation

  • Shipping 

  • and more

Tenure: 60 months with a moratorium on principal repayment for 12 months

 48 equal instalments after the moratorium period is over

ECLGS Scheme 3.0

The availability of credit in ECLGS Scheme 3.0 is higher and is up to 40% of the working capital requirements, where the total credit requirement exceeds Rs 500 crore. This scheme is specifically geared towards borrowers in sectors like:

  • Hospitality

  • Travel and tourism

  • Leisure and sporting

Tenure: 72 months with a moratorium on principal repayment for 24 months

Repayment: 48 equal instalments after the moratorium period is over

Why MSMEs should consider the ECLGS

  • Businesses across sizes and scales can apply for credit under this scheme, including sole proprietorship concerns. There is also relaxation on being GST-compliant for certain business enterprises

  • Borrowers receive a credit that is backed 100% by the Government of India through the National Credit Guarantee Trustee Company

  • The interest rate on loans has been capped by the RBI at benchmark rates + 1% subject to a maximum of 9.25% per annum, making these loans significantly affordable

  • Borrowers need not pay any loan processing fee or guarantee charges and neither are there any foreclosure penalties

  • 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

How to avail of the Credit Guarantee Scheme

Existing HDFC Bank business customers have access to a pre-approved
Emergency Credit Line. Customers can avail of a 20% additional loan over their existing outstanding loan with HDFC Bank. However, the customers will be required to execute documentation for the loan enhancement.

In addition to the ECLGS, new bank customers can avail of a
Business Loan with HDFC Bank up to Rs 40 lakh without any collateral or guarantor. You can also get your existing loan transferred to HDFC Bank at lower EMIs and attractive interest rates. Get flexible tenures on all business loans and the option for a credit protect term plan at a nominal cost that safeguards your family from any liability.