Atmanirbhar Bharat Package: Rs 3-Lakh Cr. Collateral-Free Loans for MSMEs
Providing a booster shot to millions of small businesses across the country, Finance Minister NirmalaSitharaman on Wednesday announced a slew of liquidity measures for the micro, small and medium enterprises.
The one of the major highlights of the announcements were “collateral-free automatic loan” worth “Rs 3-lakh crore” for all types of MSMEs including the stressed ones.
Both manufacturing as well as service units are eligible to apply for loan and avail 100% credit guarantee cover. The emergency credit line seeks to provide funding up to 20% of entire outstanding credit as on 29th February 2020.The loans will have 4 year tenor with moratorium of 12 months on Principal repayment. The rate of interest will be capped and thus government will ensure affordability of loan to the businesses.
The loan is extended to ease the liquidity crunch of small businesses/MSMEs and meeting their operational liabilities, purchase of raw material and restart/continue business operations.
The MSME units having up to Rs 25 crore outstanding and Rs 100 croreturnover are eligible to apply for this Covid relief loan up till 31 october 2020. There is no need to add a guarantor or collateral to avail of the concessional borrowing announced by the GoI. The scheme will help 45 lakh units in resuming their business activity and protect jobs in the country.
Lifeline for Stressed MSMEs:
Further the government extended equity support for stressed MSMEs. The government of India will facilitate subordinate debt worth Rs. 20,000 Crand support two lakh MSMEs under the scheme. All functionalbusiness units, also the ones with NPAs or are categorised as stressed are eligible to apply.
Further the centre has announced to support ofRs. 4,000 crore towards Credit Guarantee fund Trust for Micro and Small Enterprises (CGTMSE). The CGTMSE will provide some Credit Guarantee support to banks. The promoters of these MSMEs units will be given loans by banks, and this funding can be infused as equity in the Unit.
Handholding MSMEs during difficult times
The government has also set up “Fund of Funds”worth Rs 10,000 croresto support Rs 50,000 croreequity infusion for MSMEs. These FoFs will be operated through a Mother Fund and few daughter funds. This funding will specifically help MSME expand in size as well as capacity.
By way of equity infusion, more companies will be encouraged to get listed on main board of Stock Exchanges.
Re-definition of MSMEs: Expansion of overall Landscape
The central government has redefined the MSME and significantly revised the threshold eligible for the segment. The new criteria are based on investment and annual turnover for classification of MSMEs as against manufacturing &services classification previously.
According to the new definition of MSMEs-
- Micro Units are the business units with investments up to Rs 1 crore and turnover below Rs 5 crore.
- Small Units are the business units with investment up to Rs 10 crore and turnover below 50 crore.
- Medium Units are the business units with investment up to Rs 20 crore and turnover below Rs 100 crore.
|Mfg. Enterprises||Investment less than Rs. 25 Lakhs||Investment less than Rs. 5 Cr.||Investment less than Rs. 10 Cr.|
|Service Enterprises||Investment less than Rs. 10 Lakhs||Investment less than Rs. 2 Cr.||Investment less than Rs. 5 Cr.|
Revised MSMEs Classification
Manufactoring & Services
Investment less than Rs. 1 Cr. & Turnover less than Rs. 5 Cr.
Investment less than Rs. 10 Cr. & Turnover less than Rs. 50 Cr.
Investment less than Rs. 20 Cr. & Turnover less than Rs. 100 Cr.
Furthermore, the government has disallowed global tenders in Government procurement projects upto Rs 200 Crores so that Indian MSMEs and companies get a fair opportunity to prosper in the domestic market.
Booster for Marketing and liquidity crisis
The FM also announced setting up of e-market linkage for MSMEs as a replacement for trade fairs and exhibitions which would not be practically viable now. The government acknowledge the significant role Fintech will play to enhance transaction based lending using data generated by e-marketplace.
The government has assured to release all MSME receivables from Gov and CPSEs in 45 days.
All in all, the government of India has certainly infused a booster shot in the arm fir MSMEs and India Inc at large. The way to go & prosper businesses!
✅ What is the new definition of MSME in India?
Under the new definition, the government has increased investment limit and done away with classification basis manufacturing & service sector. However the government has based the new classification on turnover. According to new definition of MSME: Micro Units are the business units with investments up to Rs 1 crore& turnover below Rs 5 crore. Small Units are the ones with investment up to Rs 10 crore& turnover of below 50 crore. Medium Units are the ones with investment up to Rs 20 crore& turnover of below Rs 100 crore.
✅ What is MSME collateral free loan scheme 2020?
The government of India has announced 100% credit guarantee cover for MSME seeking unsecured business loans to meet their operational hassles owning to COVID disruptions up till October 31, 2020. This is expected to benefit 45 lakh units. To provide stressed MSMEs with equity support, Government will also facilitate provision of Rs. 20,000 crore as subordinate debt.
✅ What is collateral free automatic loan for businesses?
A collateral free loan is an unsecured borrowing. There is no need to pledge any asset to borrow a loan from lender. According to MSMEs loan scheme, the businesses affected due to COVID will be able to avail of collateral-free loans.
✅ Who is eligible for government’s collateral free loan scheme?
All the business units having outstanding loans up to Rs 25 crore and below Rs 100 croreturnover will be able to apply for this 100% government secured credit facility. The loan will be disbursed up to 20 % of outstanding credit as of end of February 2020.
✅ What will be the tenure and rate of interest of COVID MSME loans?
These COVID relief MSME loans will be offered for 4 year tenure and one year of moratorium. The interest rates will be capped and thus ensure affordability of the scheme.
✅ What is the quantum of loan for MSME for covid relief?
The loan will be disbursed for maximum up to 20 percent of their outstanding credit, as of February 29, 2020.
✅ Who will disburse the MSME loan?
The Covidemergency credit line for MSMEs will be processed by banks and NBFCs to businesses and MSMEs.
✅ What are the benefits of MSME collateral free and support loans?
The emergency credit lines will help MSMEs survive and stay operational during the covid times, thereby protecting jobs in the country. These loans will be meet working capital and cash flow difficulties of these companies. Also, the concessional lending will help the domestic companies to grow and sustain for growth of economy and AtmaNirbharBharat.
✅ What will be the mode of application and disbursement of MSME loans?
The processing of loans for MSMEs as announced by FM NiramalaSitharaman will be routed through banks and NBFCs whereby the government of India will provide 100% credit security and cap the rate of interest. The fine prints of details are yet to be released. Keep an eye on this page for updated information on MSME 2020 Covid relief loans.