MSME’s – This is your time. Rise and Shine.

According to a recent announcement by Finance Minister Smt. Sitharaman, Government has made provision for extending the guarantee to lenders for whopping 3 lakh crore of loans to lakhs of MSMEs (about 45 lakhs) units who provide a livelihood to millions of skilled and unskilled laborers. This masterstroke will now wake up risk-averse bankers and a steady flow of funds will help revive the sector.

The Government of India will provide a 100% guarantee to mitigate the risk, making banks and NBFC confident of getting their money back along with principle & interest. This will boost lending to MSMEs.

These loans are said to be collateral-free and available only for all existing borrowers up to 20% of their outstanding as on 29th February. The only condition here is the exposure to all banks combined should be a maximum of Rs.25 crore and the turnover should be a maximum Rs.100 crore (per unit). These units will be eligible for a four year EMI based loan with a moratorium of 12 months on principal repayment. The last date to apply for the scheme is 31st October.

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As part of the package, FM also announced Rs.20, 000 crore package for subordinate debt (quasi-equity) through which promoters of functional MSMEs who are NPA or stressed units can avail funds to infuse equity into their business. It is estimated that two lakh MSMEs are likely to benefit from this scheme. This is done partly to boost MAKE IN INDIA. The only caveat here could be that bankers may be a little reluctant to lend to such a stressed account. Also, these ill-prepared units with improper guidance can lend up getting their proposal rejected. Therefore, it is very much in the interest of the MSMEs to take a professional hand holding before approaching any lender.

SIDBI managed CGTSME will provide partial credit guarantee support to banks up to Rs. 4,000 crore. Details on how this guarantee will work are awaited.

With the view of COVID 19 and recommendation by RBI, earlier banks were offering additional working capital of 10% to tackle temporary cash flow challenges. But with these government guarantees, new loans up to 20% gives more comfort to banks to lend to this segment of companies. We have got many feedbacks from the entrepreneur’s community who informed us that these steps have already bought an adrenaline rush within and a renewed hope of getting back on track. We hope this turn around the MSME segment and a new story of resurgent India emerges.

If you want to understand more about current MSME regulation impact on your business, then please book your consultation session for FREE (worth Rs.2500/- only for 1st-time users)