HOW "MSME" BENEFITTED WITH COLLATERAL FREE LOANS?

 

Home loans/ Housing loans &car loans/ Vehicle loans & EMI, Moratorium are the terms with which we all are familiar and handling these issues in our daily lives. Before reaching this point we all remember the process we went through to get these loans approved.

No guarantee, no long process for the sanction of the loan. Surprising know! Its Collateral Free Automatic Loans for MSMEs.

An enterprise is a company or business, often a small one. Basing on its size enterprise are of three types: Micro enterprises are the ones with less than 10 persons employed, small enterprises have 10 to 49 persons employed and the medium sized enterprises have 50 to 249 persons employed.

The abbreviation "SME"  (Small and Medium enterprises) is used by international organizations such as the World Bank, the European Union, the United Nations and the World Trade Organisation. MSMEs play a bigger role in the economy of a nation in both in developed and developing countries.

MSMEs include a self-employed workers, contractors, online retailers, consultants, freelancers, sole traders, cleaners and hairdressers. These MSMEs work individually or in collaboration focussing on customer service and customer experience. They cater to the needs of the customer by creating the products and services that a customer wants. Attention towards customer and producing tailor made products help these to be successful in their venture. These MSMEs provide good customer service and there by getting customers coming back.

This is the usual pattern of service offered by the MSMEs to the customers and the society is getting benefitted a lot and the positive impact of these on the National economy was noticeable till the pandemic shook everything to the core. The MSME sector is one of the worst-hit industries due to the Coronavirus outbreak and the subsequent nation-wide lockdown. 

At this juncture Government has stepped in and announced the collateral-free automatic loans. This scheme is part of Atmanirbhar Bharat Abhiyan package announced by the Prime Minister to kick-start the economy, impacted by the Coronavirus outbreak. 

A notification was sent to banks and NBFCs, detailing the implementation of this scheme. The collateral-free automatic loans are available to micro, small, and medium enterprises as well as other businesses. Banks and NBFC's are directed to process this and help the MSMEs to avail this scheme at the earliest possible time.

The credit is 100% guaranteed by the central government via the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises). However, note that borrowers do not have to pay any guarantee fees as this is issued by the government as a part of covid -19 relief package

Usually for any bank loan the borrower needs to submit collateral or guarantee to become eligible for the loan offer. However, this is a big hurdle for businesses, especially small businesses, as they do not have an asset or property to pledge.

With this collateral free loan borrowers do not have to pledge any asset or collateral to avail the loan. The government acts as the guarantor, in this case. This is a massive benefit for MSMEs that do not have any collateral to fall back upon.

The term "automatic" means eligible MSMEs, and can avail of this loan without having to go through a lengthy eligibility and sanction process. The implementation of this scheme is to be speedy and hassle-free, thereby reducing the loan approval process significantly.

This loan scheme can be availed by a MSMEs with an annual turnover of up to Rs.100 crores and an outstanding credit limit of up to Rs.25 crores. 

This brings in a high relief to cash-strapped MSMEs suffering in the severe economic downturns in recent times. These loans have a tenure of four years. This will surely help the MSMEs to get back on their feet and stabilise their operations. With the loan amount, MSMEs can boost their cash flow, thereby focussing on the improvisations needed to power up their business.

These loans offer significant relief to owners of MSMEs who are in immediate need of working capital to boost cash flow. 

Apart from this the government also has announced various other financial incentives and measures to help MSMEs resume their operations post-lockdown.

 

 

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