GECL Scheme - Guaranteed Emergency Credit Line

The GECL loan scheme provides crucial support to SMEs by offering collateral-free loans during times of financial crisis. This blog post explores the significance of the GECL scheme, its benefits, and the business loan interest rates associated with it.

In times of financial uncertainty and crisis, SMEs often face challenges in accessing timely credit or instant funds to carry out their operations. To address this issue, the Indian government introduced the Guaranteed Emergency Credit Line (GECL) loan. Under this scheme, eligible businesses can avail themselves of collateral-free loans of up to Rs 3 lakh crore to meet their working capital requirements and overcome the financial hurdles caused by unforeseen circumstances.

This blog post provides an overview of the GECL loan, highlighting its significance, benefits, and the Business Loan interest rates associated with it.

What is Emergency Credit Line Guarantee Scheme (ECLGS)

The Emergency Credit Line Guarantee Scheme (ECLGS) is a government initiative aimed at providing financial support to businesses affected by the COVID-19 pandemic. This scheme offers collateral-free loans, known as GECL loans, to eligible borrowers. The full form of a GECL loan is Guaranteed Emergency Credit Line.

Now let’s understand the GECL loan meaning. Under this scheme, business owners can get a loan to meet their operational expenses and revive their operations in case of a financial crisis or need of an emergency fund.

What is the Objective of ECLGS Scheme

Here are the key objectives of the ECLGS Scheme:

• Provide financial assistance to businesses impacted by the COVID-19 pandemic.

• Stimulate economic growth by enabling businesses to meet operational expenses and revive their operations.

• Offer collateral-free loans, known as GECL loans, to eligible borrowers.

• Ensure liquidity in the market and prevent business closures and job losses.

• Support specific sectors such as MSMEs, business enterprises, and individual borrowers.

• Promote self-reliance and resilience in the Indian economy.

• Facilitate access to credit at affordable interest rates, promoting business sustainability and growth.

• Boost overall economic recovery and contribute to the nation's development.

Overall, the ECLGS scheme aims to address the financial challenges businesses face and provide them with the necessary support to overcome the adverse impact of the pandemic.

Features of the ECLGS Scheme

Here are the key features of the ECLGS Scheme:

• Collateral-free Loans

The scheme offers collateral-free GECL loans, allowing eligible borrowers to access credit without providing additional security.

• Backed by the Government

The loans provided under the scheme are 100% guaranteed by the government, giving assurance to lenders and reducing the risk associated with lending.

• Extended Loan Tenure

Borrowers can avail of loans with a tenure of up to 5 years, including a 1-year moratorium on repayment of the principal amount.

• Eligibility Criteria

The scheme is available to eligible MSMEs, business enterprises, and individual borrowers with outstanding loan amounts as per specified criteria.

• Loan Amount

Borrowers can avail up to 20% of their total outstanding loan amount. (as of February 2020).

• Interest Rate

The interest rate on GECL loans is capped, ensuring affordable borrowing costs for businesses.

• Loan Usage

The funds obtained through GECL loans can be used for meeting operational expenses, payment of wages, payment to suppliers, etc.

• No Additional Guarantee Fee

The scheme does not require any additional guarantee fee, making it more accessible for borrowers.

What are the modalities of the Guaranteed Emergency Credit Line (GECL)?

Here are the key GECL modalities you must know:

1. The National Credit Guarantee Trustee Company (NCGTC) provides guarantee coverage to Member Lending Institutions (MLIs) under the Guaranteed Emergency Credit Line (GECL) scheme.

2. MLIs must execute an undertaking with NCGTC and obtain approval from their respective lending institution's Board of Directors to be enrolled in the scheme.

3. Scheduled Commercial Banks (SCBs), Financial Institutions (FIs), and Non-Banking Financial Companies (NBFCs) can enrol as MLIs, with NBFCs needing to have been in operation for at least two years as of February 29, 2020.

4. MLIs can extend GECL up to 20% of the borrower's total outstanding credit, up to a maximum limit of Rs. 25 crore as of February 29, 2020, as additional working capital.

5. The maximum additional amount that can be extended under GECL to an eligible borrower is Rs. 5 crore.

1. NCGTC provides 100% coverage for the funding provided under GECL without charging any guarantee fee from the lender or borrower.

7. It differs from the CGTMSE scheme for MSMEs, which guarantees credit facilities with collateral or third-party guarantee and charges varying guarantee fees.

What are the eligibility norms for Guaranteed Emergency Credit Line

Here are the eligibility criteria for the GECL loan-

1. Borrowers should have existing loans or credit facilities from MLIs as on February 29, 2020.

2. Businesses in sectors affected by the COVID-19 pandemic are eligible, including MSMEs, individual loans for business purposes, and business loans for professionals.

3. The borrower's account should be classified as a standard account with the MLIs.

4. The borrower should not be in default for more than 60 days as on February 29, 2020.

5. The borrower's GST registration should be valid and active.

6. The eligibility criteria may vary slightly for individual MLIs, and interested borrowers should check with the respective MLIs for specific details.

What is the interest rate and other charges applicable for Guaranteed Emergency Credit Line (GECL)?

Below are the details on GECL loan interest rate and other related charges applicable for the same -

What about the tenor, moratorium period and pre-payment penalty applicable for GECL?

When it comes to the GECL scheme, it's essential to understand the tenure, moratorium period, and prepayment penalty. The tenure for GECL is set at 4 years, providing borrowers with a reasonable timeframe to repay the loan. During the initial phase, borrowers can benefit from a moratorium period of 1 year, where they are not required to make any repayments. It allows businesses to stabilise and regain their financial footing before commencing loan repayments.

Furthermore, one of the benefits of GECL loan repayment is that there is no prepayment penalty, providing borrowers with the flexibility to repay the loan ahead of schedule without incurring any additional charges.

Conclusion:

GECL loans offer a lifeline to businesses needing financial support during challenging times. Its attractive interest rates, flexible repayment options, and simplified application process provide a much-needed boost to businesses, allowing them to meet their working capital requirements and overcome financial hurdles.

By leveraging this scheme, businesses can navigate uncertainties, sustain operations, and plan for future growth. If you're considering taking a Business Loan, assess your eligibility for the GECL scheme and apply for it. You can use the Business Loan Calculator on the Hero FinCorp website to calculate your loan costs based on the loan amount, interest rate and repayment tenure. Take advantage of this opportunity to propel your business forward with GECL.

FAQ:

• What is the limit of GECL loans?

The limit of GECL loans generally depends on the financial institution and the borrower's eligibility criteria. Eligible SMEs can seek a maximum of Rs 10 Crores or up to 20% of the total outstanding loans up to Rs 50 Crore from the lender. (Terms and Conditions apply)

• What is the risk weight for GECL?

The risk weight for GECL loans varies based on the borrower's creditworthiness and the financial institution's assessment.

• What is the approved line of credit?

The approved line of credit is the maximum amount of funds a borrower can access from a financial institution for business needs.