With the spread of the pandemic in 2019, all the financial industries have been shaken to their core. Where the small-medium enterprises were affected badly.

While keeping the situation in mind, the government has taken steps to assist MSMEs with the ECLGS (Emergency Credit Line Guarantee Scheme).

The scheme is known to be a boon for micro-small and medium enterprises who are struggling to make their presence in the industry. With the help of this scheme, numerous businesses got support with their daily working expenses and various other aspects.

In this blog, we will learn more about the scheme and its features along with other aspects. Scroll down to know more about it!

What is ECLGS Scheme?

ECLGS, known as the Emergency Credit Line Guarantee Scheme, was launched in 2020. The scheme was introduced in order to support the micro-small and medium enterprises in restarting their operations.

The European Credit Guarantee Scheme (ECLGS), which covers all economic sectors, completely guarantees credit facilities provided to eligible borrowers under the ECLGS. Borrowers may readily get credit via the scheme's architecture, since lenders supply pre-approved loans based on the borrower's present credit quantity, without the requirement for a new assessment. Loans are offered with no application, prepayment, or guarantee fees, and interest rates are restricted to keep credit costs low.

Features of the scheme

All regular, SMA 0 (Special Mention Account), and SMA 1 accounts held by MSME borrowers with an outstanding credit of up to Rs. 25 crore as of 29.2.2020 and less than or equal to 60 days past due as of that date, and annual turnover of up to Rs. 100 crore, were eligible for GECL funding under the Scheme.

As of February 29, 2020, GECL financing for eligible MSME debtors was up to 20% of their total outstanding credit up to Rs. 25 crores in the form of additional term loans for working capital (for banks and FIs) or additional term loans for NBFCs.
National Credit Guarantee Trustee Company Limited (NCGTC) provided MLI under ECLGS with a credit guarantee covering the total amount of money provided under GECL.
The loan from the Scheme had a four-year term and a one-year principal grace period.
Under the provisions of the Scheme, NCGTC was prohibited from charging MLIs a Guarantee Fee. The Scheme imposed a maximum interest rate of 9.25% on banks and financial institutions and 14% on non-banking financial corporations.

Different phases of the Emergency Credit Line Guarantee Scheme

This scheme for MSMEs has different phases, which are as follows:

ECLGS 1.0: Small and medium-sized companies (SMEs), corporations, Mudra borrowers, and individual borrowers with a loan amount of up to Rs.50 crore and a delinquent of up to 60 days as of February 29, 2020, are eligible borrowers.
ECLGS 2.0: Companies with a debt overdue of between Rs.50 crore and Rs.500 crore and delinquency of up to 60 days as of February 29, 2020, and operating in one of the 26 stressed industries listed by the Kamath Committee, plus the Healthcare industry.
ECLGS 3.0: Lender with a 30-day or greater delinquency in the Hospitality, Travel & Tourism, Leisure & Sporting, and Civil Aviation industries as of February 29, 2020.
ECLGS 4.0: As of March 31, 2021, existing healthcare facilities (hospitals, nursing homes, clinics, medical colleges, units producing liquid oxygen, oxygen cylinders, etc.) with a 90-day or less delinquent balance on their credit line with a financial institution.

Eligibility of the scheme

The ECLGS Scheme Eligibility for the application process is as follows-

The debtor must be registered for the Goods and Services Tax (GST). These are the essential requirements for participation in the Emergency Credit Line Guarantee Scheme.
Those with Spinal Muscular Atrophy Type 2 or Neuropathy are not eligible. These are the two most essential factors to consider when determining program eligibility; no other prerequisites are necessary.
The majority of scheme plans are open to legally recognized company structures, such as partnerships, corporations, trusts, and limited liability companies.
Loan opportunities for sole proprietorships are limited.
By February 29, 2020, the candidate's finances must be at least 60 days older. Consider the following when applying for the Emergency Credit Line Guarantee Scheme. The ECLGS loan will only be approved if all conditions are met.

Final Words

The Finance Ministry of the Indian government launched the Emergency Credit Line Guarantee Scheme (ECLGS) to aid firms that have suffered financial losses as a consequence of the COVID-19 pandemic.

By providing this scheme, the Indian government wants to assist the country's micro, small, and medium-sized firms in recouping their losses from the crisis. The goal is to lend up to three trillion rupees to small businesses to help them cover operational expenditures and retain liquidity.