Normally, as per prevailing rules & regulations of financer bank, borrowers are required to offer security while availing credit facilities for running businesses. This security can be in the form of :

• Security of prime assets (assets to create / acquire which bank finance is availed)
• Third party guarantors (as may be acceptable to financer bank)
• Security of collateral assets (assets other than prime assets – say residential flat / bungalow of borrower, other immovable or movable property of borrower / third party etc.)

However, in reality, most of the times due to non-availability of required collateral assets or due to non-availability of acceptable guarantor to lending bank, credit facilities of an entrepreneurs are held back. In such situations, central Govt. sponsored CGTMSE scheme for collateral free bank loans proves to be very supportive for borrowers.

As promised by our beloved Prime Minister Mr. Narendra Modi in his speech on the occasion of Demonitization-2016 concluding ceremony, to increase flow of credit to SME Sector, it has been decided to increase the maximum eligible credit limit under this Credit Guarantee Scheme from Rs. 100 lakh to Rs. 200 lakh per eligible borrower.

Highlights of the scheme:

• • Eligibility for Micro & Small Entrepreneurs shall be as follows :
    • Manufacturing sector – Gross investments in Plant & Machinery up to Rs. 5.00 Cr.
    • Service Sector – Gross investments in Plant & Machinery up to Rs. 2.00 Cr.
  • Credit facility under this scheme is not granted for financial activities carried on by :
    • Retail Traders
    • Educational institutions
    • Agricultural activities
    • Self-help groups
  • • Loans under this scheme can be raised from funding provided by all scheduled commercial banks, SIDBI, approved Regional Rural Bank & certain NBFCs. However, scheduled co-operative banks as well as urban co-operative banks are not eligible to grant credit facility under said scheme.
  • • Eligible borrower can, as per borrower’s requirement, avail fund based (Project Loan, Term Loan, Cash-Credit loan, Bills Discounting etc.) & / or non-fund based (bank guarantee / letter of credit) credit facilities or any combination thereof under this scheme.
  • As per prevalent guidelines in this regard, the maximum amount loan that can be sanctioned by way of fund based as well as non-fund based credit facilities, without any collateral security and / or third party guarantee by different types of financial institutions is as under:

• Under this scheme, even existing credit facilities (fund based as well as non-fund based – as stated above) can be covered under this scheme at the time of renewal of existing cash credit facility & / or at the time of sanctioning of additional credit to said borrower & abolish existing guarantor as well as un-freeze its collateral asset from lending bank.
• All loan proposals under said scheme shall be scrutinized by banks before sending it to the trust. Also, lender need to do due diligence while sanctioning the loan, necessary follow up for loan repayment.
• As per lending bank’s requirement, project report, lender’s Pan Card no, Udyog Aadhar memorandum no. & other documents are mandatory for sanctioning the case under this scheme.
• Prime interest rate on such credit facilities shall be decided by lending bank. However, depending on lending bank’s prevailing policies, processing fees for sanctioning credit facilities under this scheme may range from 0% to 1.50% of loan amount.
• Loans under NPA category are not covered under said scheme.
• Loans by single bank or under consortium arrangement can be covered after taking into consideration existing arrangements.
• Depending on convenience of lending banks, if overall credit facilities as sanctioned to an eligible borrower are above the upper limit under the present scheme i. e. above Rs. 2.00 Cr., then credit guarantee cover under present scheme can be covered for credit facilities only up to maximum limit under the scheme i. e. maximum up to Rs. 2.00 Cr. exposure. For balance exposure, i. e. exposure over & above maximum permissible limit, lending bank has to take appropriate decision for coverage of its risk for credit facility provided to borrower.

Disclaimer:

1. Above study report / information has been provided solely to create general awareness about banking schemes as available for borrowers.
2. For more details, please visit www.cgtmse.in & visit your bank.