The ECLGS Scheme (Emergency Credit Line Guarantee Scheme): The Complete Guide to This MSME Initiative
Micro, Small, and Medium-sized Enterprises (MSMEs) play a vital role in India’s growth, contributing a significant 30% to the country’s GDP. But when the pandemic hit, these small businesses faced tough times. Reports showed a staggering 46% decline in MSMEs’ business during the 2020 lockdown. Many businesses had to shut down, and others struggled to survive due to cashflow shortages.
To give a helping hand to these struggling enterprises, the Government introduced the Emergency Credit Line Guarantee Scheme (ECLGS) in 2020. Wondering what ECLGS is all about and how it can support these businesses? Keep reading to find out!
What is the ECLGS Scheme?
The ECLGS scheme was introduced by the Finance Ministry as a crucial part of the Aatmanirbhar Bharat Abhiyan initiative in 2020. It aimed to provide a lifeline to businesses struggling due to the impact of the Covid-19 pandemic. Picture this: small and medium-sized enterprises, the backbone of our local communities, were facing tough times. Many had to shut down or were struggling to meet their financial needs.
To address this, the Government came up with a thoughtful plan. They offered government-guaranteed, collateral-free loans to these businesses. It’s like offering a helping hand to your friends in need, assuring them that even without collateral, they could get financial support to get back on their feet.
The main goal was simple: to give these enterprises a chance to recover and thrive again. They needed the necessary funds to restart their businesses or manage their day-to-day operations during these difficult times. The scheme provided them with much-needed liquidity, ensuring they could keep their doors open and continue contributing to the economy.
Throughout the process, the Government stood by its promise and made a significant allocation of Rs. 3.73 lakh crores to support businesses through the ECLGS scheme. It’s like a lifeline being extended to countless small businesses all over India.
Now, you might wonder about the phases of this scheme. Well, the ECLGS scheme was rolled out in four distinct phases, each aimed at reaching out to more and more enterprises, covering a wider range of businesses in need.
Phases of the ECLGS: Providing Lifelines to Businesses
Emergency Credit Line Guarantee Scheme 1.0
In 2020, the Government introduced the ECLGS 1.0, a lifeline for eligible businesses during the challenging times of the pandemic. Imagine a safety net that allows businesses to secure Guaranteed Emergency Credit Line (GECL) loans or additional funds equal to 20% of their outstanding credit, capped at Rs. 50 crores as of February 29, 2020. These loans came with much-needed relief, as they offered a moratorium period of about a year and repayment tenure of four years from the disbursement date.
Additionally, the Government extended this support through ECLGS 1.0 (Extension). This allowed both existing borrowers and new ones to avail of working capital loans or additional term loans, amounting to 30% of their outstanding credit, up to Rs. 50 crores, based on either February 29, 2020 or March 31, 2021. The extension came with a moratorium period of 2 years and a repayment period of 5 years, providing even more breathing room for businesses.
Emergency Credit Line Guarantee Scheme 2.0
As the pandemic’s impact lingered, the Government continued its support through ECLGS 2.0. This phase aimed to provide financial assistance to businesses in specific sectors identified by the Kamath Committee on Resolution Framework and healthcare. Under this scheme, eligible enterprises could request GECL funding, term loans, or non-fund-based facilities, amounting to 20% of their outstanding credit between Rs. 50 to Rs. 500 crores. The loans provided a moratorium period of one year and repayment tenure of 5 years.
Further, the Government launched ECLGS 2.0 (Extension), expanding the loan amount to 30% of the total outstanding credit (for fund-based facilities) up to Rs. 500 crores, based on February 29, 2020, or March 31, 2021. This extension carried a moratorium period of 2 years and extended repayment tenure of 6 years, providing a more extended period for businesses to recover and rebuild.
Emergency Credit Line Guarantee Scheme 3.0
Understanding the challenges faced by businesses in the Hospitality, Tourism, Leisure, Travel, and Sporting sectors, the Government introduced ECLGS 3.0. This phase targeted larger enterprises requiring more substantial support—businesses with outstanding credit greater than Rs. 500 crores could apply for loans of up to 40% of their outstanding credit, capped at Rs. 200 crores per borrower. This measure was like a lifeline for enterprises in these sectors, helping them stay afloat during uncertain times.
The Government didn’t stop there. They launched ECLGS 3.0 (Extension) to provide even more extensive support. Eligible businesses, excluding aviation, could request loans up to 50% of their total outstanding credit, capped at Rs. 200 crores, based on specific criteria. However, aviation businesses had a unique provision, allowing them to take fund or non-fund-based loans of up to 50% of their total outstanding credit, capped at Rs. 400 crores.
In addition, airlines had the option to procure fund-based and non-fund-based loans of up to 100% of their total outstanding credit, capped at Rs. 1500 crores, provided they met the eligibility criteria. These extensions carried a moratorium period of 2 years and a repayment tenure of 6 years, offering a substantial period of support for businesses to stabilize and thrive.
Emergency Credit Line Guarantee Scheme 4.0
Finally, to support businesses in the healthcare sector, particularly those involved in manufacturing oxygen cylinders or liquid oxygen, the Government introduced ECLGS 4.0. This phase aimed to provide a boost to those contributing to the critical need for oxygen supply during the pandemic. Eligible businesses, including hospitals, colleges, and nursing homes, could request loans of up to Rs. 2 crores per borrower for oxygen production.
These loans are considered the on-balance sheet exposure, meaning the outstanding amount across term loans, working capital loans, and WCTL (Working Capital Term Loans). The loans under ECLGS 4.0 provided a moratorium period of 6 months and a repayment tenure of 5 years, offering the necessary financial support for these vital healthcare initiatives.
Features of the ECLGS Scheme
- Purpose
The Emergency Credit Line Guarantee Scheme (ECLGS) was carefully designed to be a lifeline for MSMEs (Micro, Small, and Medium Enterprises) severely impacted by the challenges posed by Covid-19.
Its primary purpose was to provide crucial financial assistance to these businesses, enabling them to meet their working capital requirements during the difficult times of the pandemic. It’s like having a reliable friend by your side, assuring you that support is available when you need it the most.
- Loan Amount
The ECLGS scheme carried significant firepower, with the Government allocating a substantial amount of Rs. 3 lakh crore to the initiative. This impressive funding pool was set aside to ensure that eligible businesses, regardless of their size or industry, had access to the financial resources needed to navigate the economic uncertainties brought on by the pandemic.
Picture this massive fund as a safety net, ready to catch MSMEs and keep them afloat during turbulent times.
- Flexible Repayments for Tailored Support
The beauty of the ECLGS scheme lies in its understanding that one size doesn’t fit all. The loan repayments were structured to cater to the unique needs of different industries and businesses. Depending on the specific industry and the eligibility criteria of the scheme, the moratorium and repayment periods varied.
This thoughtful approach recognized that some sectors might require more time to recover and resume normal operations, while others might rebound more quickly. So, the scheme offered tailored support to ensure that MSMEs could manage their repayments without undue stress, just like a personalized repayment plan that fits your financial situation perfectly.
- Government-Backed Assurance: A Shield of Confidence
One of the most reassuring aspects of the ECLGS scheme was the rock-solid backing provided by the National Credit Guarantee Trustee Company (NCGTC). With unwavering support, the NCGTC offered a 100% coverage guarantee to Member Lending Institutions (MLI), Non-Banking Financial Companies (NBFCs), banks, and other Financial Institutions.
This guarantee acted as a shield of confidence for these institutions, giving them the reassurance they needed to extend loans to MSMEs without hesitation. It’s like having a trustworthy co-signer vouching for you, making it easier for businesses to secure loans and move forward with renewed hope.
Eligibility Criteria for the ECLGS Scheme
- ECLGS 1.0 Scheme
Under the ECLGS 1.0 scheme, businesses are eligible if they have a total outstanding credit of up to Rs. 50 crores, and their accounts were less than 60 days past due as of February 29, 2020. It’s like offering a helping hand to businesses that were facing financial difficulties but hadn’t fallen too far behind on their payments.
- ECLGS 1.0 (Extension) Scheme
The ECLGS 1.0 (Extension) scheme is available for two categories of borrowers. First, those who have already claimed assistance under ECLGS 1.0, allowing them to continue receiving support. Second, new businesses that meet the revised eligibility criteria as of March 31, 2021. This extension aims to cover more businesses and offer support to those who joined the market after the initial rollout.
- ECLGS 2.0 Scheme
Businesses in specific sectors identified by the Kamath Committee Resolution Framework and Healthcare sectors can benefit from the ECLGS 2.0 scheme. To qualify, enterprises should have a total outstanding credit of Rs. 50 crores and Rs. 500 crores, with accounts less than 60 days past due as of February 29, 2020. This support targets industries significantly affected by the pandemic.
- ECLGS 2.0 (Extension) Scheme
Similar to the previous extension, the ECLGS 2.0 (Extension) scheme caters to borrowers who have already claimed assistance under ECLGS 2.0. Additionally, it offers an opportunity for new businesses that meet the revised eligibility criteria as of March 31, 2021, to avail support and boost their operations.
- ECLGS 3.0 Scheme
The ECLGS 3.0 scheme focuses on providing assistance to MSMEs in the hospitality and related sectors, along with the civil aviation sector. To qualify, the businesses’ accounts should be less than 60 days past due on February 29, 2020. This measure aims to prop up industries heavily impacted by the pandemic’s travel restrictions and slowdown in economic activities.
- ECLGS 3.0 (Extension) Scheme
The ECLGS 3.0 (Extension) scheme extends support to borrowers who have already claimed assistance under ECLGS 3.0. Furthermore, it accommodates new businesses meeting the revised reference dates, which are March 31, 2021, and January 31, 2022. This extension ensures ongoing support for enterprises and helps newer businesses seeking financial backing.
- ECLGS 4.0 Scheme
The ECLGS 4.0 scheme is tailored to benefit enterprises engaged in manufacturing liquid oxygen and oxygen cylinders. To be eligible, the businesses should have a credit facility that is less than 90 days past due as of March 31, 2021. This measure supports the crucial need for oxygen supply during the pandemic, enabling these manufacturers to play a pivotal role in the healthcare sector.
Interest Rates under ECLGS Scheme
ECLGS 1.0, 1.0 (Extension), 2.0, 2.0 (Extension), 3.0, 3.0 (Extension):
- Banks and Financial Institutes: 9.25% p.a.
- NBFCs: 14% p.a.
- ECLGS 4.0: 7.5% p.a. (Uniform rate across all lenders)
How to apply for the ECLGS with GoKapital?
You can apply for ECLGS with any financial institution. However, please note that it is currently exclusively available for existing customers.
If you are an existing GoKapital customer, visit our website to apply for the ECLGS. If, however, you are a small business unable to secure a loan under ECLGS, don’t worry. GoKapital offers business loans customized to suit your requirements. Visit our website to explore more about our low-interest loans.