Small and medium enterprises are the lifeline for the Indian Economy that makes up for almost 95% of the total industrial units in the country. Broadly speaking, this sector comprises of manufacturing, food processing, chemicals, IT, infrastructure among other industries. As a key driver of growth, SME’s employ a staggering 40% of the total Indian working population, thereby contributing significantly to the overall GDP and growth numbers. What typically ails this sector is the lack of access to easy credit facility, human capital, consistent growth, upgradation of technology and shortage of raw materials. It is evident from what is seen that capital and finance constitutes the main issue faced by businesses. Government schemes and government-linked credit facility offers help and assistance to a great extent. However, most of us face the issue of understanding what are the options available in the market and how to go about it.
To begin with, understand what are the options available when it comes to Government-linked credit facility scheme
MSME Business Loans in 59 minutes
True to its name, the scheme announced in September, 2018 aims to provide financial assistance to the tune of ₹1Crore for MSME (Micro, Small and Medium Enterprises) sector. While the approval or disapproval of loan will be intimidated to the applicant within 59 minutes, the actual process and disbursal may take 8-12 days to complete.
The CGMSE-for Micro and Small enterprises
The Credit Guarantee Fund Scheme for Micro and Small Enterprises was launched in the year 2000, with a noble idea of providing collateral-free credit facility for both the existing and new MSMEs. This scheme aims to provide working capital loans up to ₹10 lakhs (without collateral) and up to ₹1Crore with collateral that includes primary security such as land and building that is associated with the enterprise.
While the business loans under the CGMSE are financed by various public and private sector banks covered under the scheme, a one-time guarantee fee is applicable. Rates being 1.00% in case of credit facility of upto ₹5 Lakh and 1.5% in case of credit above ₹5 Lakh; 0.75% in case of credit facility upto ₹ 50 lakh sanctioned to units in the North Eastern Region.
The Micro-Units Development and Refinance Agency aims to provide financial support for micro-business units who otherwise have no means and methods to raise finance or avail credit facility from any organized institution. MUDRA loans are disbursed through the public sector and private sector banks, co-operative banks, rural banks and scheduled commercial banks listed under this scheme.
The MUDRA loans are structured as:
-Sishu loans upto ₹50,000/-
-Kishor Loans upto ₹5,00,000/-
-Tarun Loans upto ₹10,00,000/-
The National Small Industries Corporation Subsidy provides credit facility to improve the competitiveness, quality, and quantity of the service and products. This consists of financial assistance under two heads-
-Assistance for Marketing-provides funds for marketing and to enhance the competitiveness in the market for products and services.
-Assistance for procuring raw materials-both indigenous and imported raw materials are covered under this segment.
The Credit Link Capital Subsidy Scheme for Technological upgradation provides credit facility to small businesses for technological upgradation. The aim here is to reduce the cost of production and stay competitive in terms of pricing and quality. The scheme is run by the Ministry of Small-scale industries and offers capital subsidy of 15% for eligible business that includes sole proprietorship concerns, partnership firms, co-operative, private and public limited companies.
Options other than Government schemes
Besides the government schemes banks and financial institutions, non-banking financial institutions are the go-to organizations for the purpose of credit facility. Regulatory compliances are a norm here and paperwork can be extensive. During recent times, Neobanks and digital banks offer a whole host of banking functions including the advancement of loans and credit. Given the mobile-first environment we live in, Neobanks can prove to be an efficient system for Small and Medium enterprises who wish to seek credit facility.
Here’s how to go about it
Application and regulatory compliances- Application for loans under the Government-linked credit scheme necessitate a certain extent of documentation and regulatory compliances. The list of documents for the purpose of compliance is listed in the SIDBI portal. Broadly speaking, this includes the following:
-GST verification – Income Tax Verifications -Bank Account Statements of the last 6 months
-Business related documents – KYC Details – Ownership related documents
The flip side however remains the fact that the process can sometimes take longer than expected. Since the loans are funded by the banks and financial institutions, formalities and processes can take away the definition of ‘speedy and expedite loans’ as touted by the schemes. Banks and financial institutions, as well as Neobanks and digital banks, may provide some respite as most of them provide for digital loan facility which includes digital verification and uploading of documents.