Credit Guarantee Scheme for Subordinate Debt for Stressed MSMEs

The Credit Guarantee Scheme for Subordinate Debt for Stressed MSMEs is a government initiative aimed at reviving financially distressed MSMEs. It provides a credit facility to promoters, which is then infused into the MSME as equity or quasi-equity, helping them overcome challenges and improve their financial health.

What is the Credit Guarantee Scheme for Subordinate Debt?

This scheme provides a credit facility to promoters of stressed MSMEs. This credit is then infused into the MSME as equity, quasi-equity, or sub-debt, allowing them to improve their financial position and overcome challenges.

Key Objectives of the Scheme

· Revive Stressed MSMEs: To help revive and revitalize stressed MSMEs facing financial difficulties.

· Promote Promoter Confidence: Encourage promoter confidence and re-engagement in the business.

· Improve Financial Health: Improve the financial health of stressed MSMEs by increasing their capital base.

· Support Economic Growth: Contribute to the overall economic growth by supporting the revival of MSMEs.

Eligibility Criteria for the Scheme

· Stressed MSMEs: The scheme is primarily designed for MSMEs that are classified as stressed, such as those facing financial difficulties or nearing default.

· Promoter Contribution: Promoters must contribute 10% of the credit facility, while the remaining 90% is covered by the credit guarantee.

· Loan Amount: The credit facility is limited to 15% of the promoter's stake in the MSME (equity plus debt) or Rs. 75 lakh, whichever is lower.

· Eligible MSMEs: MSMEs that were standard as on 31.03.2018 and have been in operation during 2018-19 and 2019-20 are eligible.

Benefits of the Scheme

· Financial Support: Provides crucial financial support to stressed MSMEs to overcome challenges.

· Reduced Risk for Promoters: 90% guarantee coverage from the scheme minimizes the risk for promoters.

· Improved Financial Stability: Helps improve the financial stability and long-term viability of the MSME.

· Enhanced Competitiveness: Enables MSMEs to overcome financial hurdles and become more competitive in the market.

How to Apply for the Scheme?

1. Approach the Bank: Approach the bank where the MSME maintains its loan account.

2. Loan Application: Submit a loan application to the bank for the credit facility under the scheme.

3. Bank Assessment: The bank will assess the loan application and determine eligibility.

4. Guarantee Coverage: The bank will avail of the 90% guarantee coverage from the scheme.

5. Funds Infusion: The promoter will infuse the credit facility into the MSME as equity/quasi-equity/sub-debt.

Documents Required for Application

· Proof of Identity: Aadhar Card, PAN Card, Voter ID, etc.

· Proof of Residence: Address proof documents.

· Business Documents: Udyam Registration, GST registration, partnership deed, etc.

· Financial Documents: Balance sheets, income tax returns, bank statements, etc.

· Project Report: A detailed project report outlining the proposed use of funds.

· Other Documents: As per the specific requirements of the bank.

FAQs About the Scheme

1. What is the maximum credit facility available under the scheme?
15% of the promoter's stake in the MSME or Rs. 75 lakh, whichever is lower.

2. What is the guarantee coverage provided under the scheme?
90% of the credit facility is covered by the scheme.

3. Who is eligible for the scheme?
Stressed MSMEs that meet the eligibility criteria.

4. How long is the repayment tenure for the credit facility?
Maximum 10 years with a moratorium of up to 7 years on principal repayment.

Why Should You Apply for the Scheme?

The Credit Guarantee Scheme for Subordinate Debt provides a crucial lifeline for stressed MSMEs. By offering financial support and reducing the risk for promoters, the scheme empowers MSMEs to overcome challenges, revive their businesses, and contribute to the economic growth of the nation.

Conclusion

The Credit Guarantee Scheme for Subordinate Debt plays a vital role in supporting the revival and growth of stressed MSMEs in India. By providing a crucial financial lifeline to promoters and encouraging them to re-engage in their businesses, the scheme contributes to the overall economic health and stability of the MSME sector.