Credit line

Small businesses benefited from an emergency line of credit guarantee program. Learn more about it here.

Collateral-free loans were provided to small businesses under an emergency line of credit guarantee program

According to official data, as many as 117.87 lakh businesses have received 100% guaranteed unsecured loans under the Emergency Credit Line Guarantee Scheme (ECLGS) till March 11, 2022. Among them- here, around 95% were micro, small and medium-sized enterprises (MSMEs).

The government recently gave this information to Parliament. However, what exactly is the ECLGS and how does it help small businesses, especially during the lockdown period when disruptions have severely affected these entities, needs to be known.

So let us know more about this diet.

What is ECLGS?

The government had launched the ECLGS in May 2020 when the nationwide coronavirus-induced lockdown was in place and the scheme was announced as part of the Aatma Nirbhar Bharat package.

The ECLGS programme, which was specifically aimed at supporting MSMEs – since these have been the hardest hit by the disruption – offers a 100% guarantee to member credit institutions (IMLs) with regard to the credit facility that they granted under the program to eligible borrowers.

Finance Minister Nirmala Sitharaman during the presentation of the Union budget for 2022-23 had announced that the ECLGS would be extended until March 2023, and thereafter it is now open until 31 March 2023.

How does ECLGS work?

The structure of the program allows for easy access to credit as lenders offer pre-approved loans based on the borrower’s existing credit balance and there is no new assessment undertaken by lenders as additional credit is sanctioned in addition to credit facilities already assessed.

In addition, the interest rate is capped to reduce the cost of credit and loans are sanctioned without processing fees, prepayment fees or guarantee fees.