Union finance minister Nirmala Sitharaman on Wednesday announced Rs 3 lakh crore collateral free automatic loan for businesses, including micro, small and medium enterprises (MSMEs). This will benefit 45 lakh small businesses, she said, detailing parts of the Rs 20 lakh crore economic stimulus package.
Let’s understand the announcement on collateral free loan in detail:
What do we mean by collateral free automatic loan for businesses?
A collateral free loan ideally means that borrowers do not have to offer any asset or pledge collateral to borrow against it. The lender doesn’t have any asset to fall back upon in case of default. MSMEs in India can avail collateral-free loans to set up the business or even for the expansion of the same, according to Aditya Birla Capital.
Ideally, loans to MSMEs are offered by financial institutions such as banks and NBFCs. The government has also introduced a couple of schemes to help MSMEs in funding their businesses.
As per FM’s announcement, who will be able to avail it?
According to the finance ministry, borrowers with up to Rs 25 crore outstanding and Rs 100 crore turnover will be able to avail it.
What will be the tenure and rate of interest of these loans?
These loan will have 4 year tenure and interest rates will be capped, according to FM. The moratorium will last for 12 months, she said.
How much outstanding credit will it cover?
The emergency credit line being extended by banks and NBFCs to businesses and MSMEs will cover up to almost 20 percent of their outstanding credit, as of February 29, 2020.
How beneficial will it be?
According to Amar Ambani, Senior President and Head of Research â Institutional Equities, YES Securities, the mention of collateral-free automatic loans to a tune of total Rs 3 lakh crore to be given out to MSMEs will be highly fruitful.
“Loans that will get sanctioned under some of these schemes will have a 4-year tenure which gives the businesses a reasonable turn-around time. The larger impact will be in arresting the growing unemployment rates. With the inflow of cash at lower interest rates and long term repayments, businesses should be able to make payroll.
Documents Required for MSME Loan
- Duly filled Application form
- Identity Proof: Passport, driving licence, PAN card, Voterâs identity card
- Residence Proof: Passport, lease agreement, trade license, telephone and electricity bills, ration card and sales tax certificate
- Age Proof: Passport, Voterâs identity card, Photo PAN card
- Last 12 monthsâ bank statement
- Business registration proof
- Proprietor(s) PAN Card Copy
- Partnership deed copy
- Company PAN card copy
- P&L and balance sheet copy of last 2 years
- Sales tax documents
- Municipal tax document