Government looks to expand small business loan coverage

(This story originally appeared in on Jul 31, 2020)

NEW DELHI: Amid complaints of exclusion, the government is looking to expand the coverage of the guarantee-based loans for small businesses. The sanctioned limit is proposed to be doubled to up to Rs 50 crore and annual turnover eligibility may be increased to Rs 200 crore.

The finance and MSME ministries are working on the changes following discussions at the highest level, amid concerns that several businesses were not getting funds meant to help them navigate the impact of the coronavirus crisis, sources told TOI.

In May, finance minister Nirmala Sitharaman had announced the Emergency Credit Line Guarantee Scheme (ECLGS) to provide top-up loans of up to 20% to borrowers, with outstanding credit up to Rs 25 crore on February 29. In addition, the turnover limit was prescribed, allowing a maximum additional lending of Rs 5 crore to an entity.

The government was hoping to provide support of up to Rs 3 lakh crore to small businesses to meet the impact of cash-crunch due to the lockdown and help pay rent and salaries. But till July 23, Rs 1.3 lakh crore had been sanctioned by public and private sector lenders, with disbursement estimated at a shade over Rs 82,000 crore.

Businesses have complained that some of them were ineligible for the loan as they had used a higher credit facility at the end of February and had later on repaid the dues. By linking it to the sanctioned limit, as opposed to the outstanding, the government is hoping to provide greater leeway.

Similarly, businesses have been complaining that they are ineligible for funding as there are just above the turnover criteria. With twice the limit, the coverage will go up. Many small businesses are using the special credit facility to reduce their cost of borrowing. The ECLGS funds – which come at 7.5% a year, if you borrow from state-run banks, and a little over 9% from private players – are far cheaper than the 12-13% that they pay otherwise.

Government looks to expand small business loan coverage Government looks to expand small business loan coverage Reviewed by TechCO on 7/31/2020 Rating: 5

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