How Financing Schemes Benefit Businessmen in Worst Scenarios?

Posted On By Brett Arends
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The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has come to be one of the most beneficial funding options out of all the centrally-sponsored schemes available for MSMEs.

Benefit Businessmen in Worst Scenarios

As per PIB, during 2018-19

  • 36 lakh loans were disbursed under CGTSME.
  • The total value of these loans was more than Rs.30,000 crore.

Apart from CGTSME, the MUDRA loans scheme has also made it easier for small businesses to establish or expand operations.

Several other government schemes, along with private-sector lending and peer-to-peer lending have helped to benefit business owners in the worst scenario.

Some of the situations where these credit facilities have been instrumental in augmenting growth and expansion are mentioned below 

1. When upgrading technology or equipment

Back in 2000, the government launched the CLCSS or Credit Linked Capital Subsidy Scheme for the up-gradation of technology in industries falling under the small-scale category. Initially, the scheme covered 9 sub-sectors and products, which was increased to 51 later on.

As of 2018-19

  • A number of units covered by CLCSS were 14,000+.
  • The total amount of subsidy disbursed was more than Rs.980 crore.

Small and micro enterprises having a valid UAM number can avail an up-front capital subsidy of 15% or Rs.15 lakh, whichever is lower. The maximum business loan amount for receiving subsidy under this scheme is Rs.1 core.

2. To address market competition

As per the Ministry of Micro, Small and Medium Enterprises, the total number of MSMEs registered with the Udyog Aadhaar portal was more than 83 lakh between October 2015 and December 2019.

The competition among such businesses is severe, owing to their vast numbers. Hence, it becomes all the more critical for MSMEs to secure funding and expand operations to stay ahead.

For this, the government offers three types of advances under the MUDRA loans scheme, out of which, Tarun can be most beneficial for venture expansion. This type of loan extends financing between Rs.5 lakh and Rs.10 lakh.

The other types of credits offered include Kishor (Rs.50,000 to Rs.5 lakh) and Shishu (up to Rs.50,000).

As of 2019-20,

  • The total number of loans sanctioned under MUDRA is around 5.8 crore.
  • Total amount disbursed stands at Rs.3 lakh crore.

Borrowers will not have to pay any processing fee in case of Kishor and Shishu loans. For Tarun, a nominal processing fee of 0.50% + taxes is applicable.

All of these types of credits under the MUDRA loans scheme is available for businesses operating in the services, manufacturing, and trading sectors, including allied agricultural activities.

3. When faced with working capital shortages

Working capital deficits are common during a downturn or seasonal demands, faced by particular businesses. In such situations, business owners can also look towards financing options from the government or the private sector.

For instance, they can opt for an MSME loan with in-principle approval in 59 minutes. It is an initiative by SIDBI and provides businesses loans between Rs.1 lakh and Rs.5 crore, and up to Rs.10 lakh under the MUDRA loans scheme.

As of 2019-20 –

  • Total number of such loans sanctioned was 1.59 lakh.
  • Total of such loans disbursed amounted to more than Rs.37,000 crore.

It should be noted that only the approval of loans under this scheme completes within 59 minutes. The disbursal process can take more time.

For quick disbursal, individuals can choose a working capital loan to fund their business operations. Working capital loans offer up to Rs.30 and are available for firms with a minimum vintage of 3 years. Applicants only have to be between the ages of 25 and 55 years with a minimum credit score of 750 to apply.

These collateral-free loans are approved and disbursed within 24 hours by NBFCs like Bajaj Finserv.

The lender also brings pre-approved offers that help save time by simplifying the process of availing credits. Pre-approved offers are available on a list of financial products like business loans, personal loans, credit card, etc. Individuals can check their pre-approved offers by submitting only their name and phone number.

Also, other than the MUDRA loans scheme, business owners can take the help of the Credit Guarantee Fund Scheme for Micro and Small Enterprises in case they seek government-backed financing. This scheme offers guarantee cover of up to 50% for loans between Rs.50 lakh and Rs.1 crore, and up to 75% for loans of Rs.50 lakh or less.

Lastly, individuals can opt for a traditional business loan from financial institutions for any situations other than the ones mentioned above. Usually, these loans don’t have any usage restrictions; these can be utilised for any objective. Business loans provided by NBFCs bear similar features and eligibility criteria with working capital loans.

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