Bank Credit Facilitation Scheme
In an effort to aid micro, small and medium enterprises or MSME units, the National Small Industries Corporation has entered into a Memorandum of Understanding with a number of Private Sectors and Nationalized Banks. Through these banks, the NSIC aid MSMEs in getting the necessary credit support for the banks.
This joint agreement to help MSMEs get the credit support they require from banks; both national and private, is known as Bank Credit Facilitation Scheme.
Bank Credit Facilitation Objectives
Following are the objectives of the scheme:-
- This scheme facilitates loans to various MSMEs with the help of different private and public sector banks.
- It also provides an option to various MSME units to transfer their existing bank account or create a new one in a different bank.
- The bank credit scheme provides aid to MSMEs by helping them in filling their loan application & preparing required documents and the submission of the same to banks.
- This scheme provides help to MSMEs in getting competitive interest rates from banks on getting a loan favourable rating which is awarded to these units by the Performance and Credit rating from the Ministry.
- It is created so that more number of MSMEs are able to avail benefit from such schemes & to help in the growth of them.
- Further, it also supports the growth of MSMEs.
Types of Loans
Under the Bank Credit Facilitation Scheme, MSMEs can avail the following types of loans with favorable interest rates and aid from the NSIC:
- Term Loans: Term loans usually last have a period of 1 to 10 years and are repaid in regular intervals. In some cases, the loan term may also be for 30 years depending on the situation and circumstance of the loan.
The term loans are mainly of three types:
~Short term loans
~Medium term loans
~Long term loans
Term loans are mainly used for the acquisition of assets and equipment that are essential for the setting up of a business or enterprise. This can also include the purchase of assets for the purpose of modernization, upgrade, expansion, and diversification of the business or organization.
- Non-Fund Based Limits: Non-fund based limit is a credit facility that allows a company or business to acquire monetary aid from a bank or a financial institution. The Company or client opens a credit account from which they withdraw cash up to the stipulated limit that is issued by the bank.
This type of loan includes guarantees like a letter of credits, foreign letter of credit, foreign bank guarantees and so on.
- Working Capital Limits: Working Capital Limit is a revolving cash credit limit facility. Here when a company or borrower has been sanctioned a working capital limit, he or she can withdraw a loan amount that is under the cash credit limit at any point during the years. These loans take the form of open cash credits, bill discounting facilities, overdrafts against book debts, etc. which are used to meet the working capital equipment of MSMEs.
Features of Bank Credit Facilitation Scheme
The major features and highlights of the Bank Credit Facilitation Scheme are as follows:
- It allows the facilitation of credit for MSMEs by integrating both public and private sector banks.
- This scheme lets MSMEs get more liberal rates of interest under the Performance and Credit rating scheme of the Ministry after a favourable rating is offered to them from the bank.
- Documentation can be a complex and detailed process for MSMEs for a loan application to a bank. In this sense, the Scheme lets the NSIC offer their aid in completing the necessary documentation and submission to the bank.
- MSMEs also receive help when it comes to applying for a new bank account or having to switch banks and transferring the account details from one bank to another.
- Under the Bank Credit Facilitation Scheme, MSMEs can also get their hands on finances from the bank based on the leading policy they have.
- MSMEs can filter and target more favourable credit proposals that are sponsored by the NSIC.
Type of Enterprise According to which Loan Amount Varies
- Micro enterprises are those manufacturing units in which the total actual value of machinery & plant is up to Rs 25 lakhs.
- It is a service enterprise whose original investment value of the equipment is up to a maximum of Rs. 10 lakhs.
- Small Enterprises are those manufacturing units in which the total actual value of machinery & plant is above Rs 25 lakhs but below Rs 500 lakhs.
- It is a service enterprise whose original investment value of the equipment is up to a maximum of Rs. 200 lakhs but above Rs 10 lakhs.
- Medium Enterprises are those manufacturing units in which the total actual value of machinery & plant is above Rs 500 lakhs but below Rs 1000 lakhs.
- It is a service enterprise whose original investment value of the equipment is up to a maximum of Rs. 500 lakhs but above Rs 200 lakhs.
How to Apply for Bank Credit facility?
To apply for Bank Credit Facility, the business owners or partners need to:
Step1: Visit the official NSIC website – https://www.nsic.co.in/Schemes/Credit-Facilitation-Through-Bank
Step 2: Download the application form and print it out.
Step 3: Duly fill out the form with the correct details and information.
Step 4: The filled out application form should be submitted to a delegated officer along with all the necessary documents.
Eligibility Criteria to apply for Bank Credit facility
All registered businesses are eligible for a Bank Credit Facilitation Scheme, whether the business is a micro, small, or even medium one. As long as the enterprise ID is registered and recognized by the Government, it can apply for a Bank Credit Facilitation Scheme.
Documents Required to apply for Bank Credit facility
To be eligible for a Bank Credit Facilitation Scheme, the following documents and reports need to be presented:
- Proof of Identity: this can be in the form of a passport, driver’s license, or voter ID card of the applicant.
- Residence Proof: the applicant can use bills like electricity bills, passports, and driver’s license as proof.
- Address proof of the place of business
- Liability statements with the most recent IT return.
- All details of assets possessed by the directors and guarantors.
- A memorandum of the business and the SSI registration certificate should be produced.
- A detailed document encompassing the nature and activity of the business should be generated. This document should include the names and residential addresses of promoters along with the shareholding patterns and experience of the company as a whole.
- The complete balance sheet of the IT/ST returns for the past 2 years.
- Filled out credit facilitation application form.
- Estimate balance for the coming 2 years.
- A Credit Monitoring Agreement copy
- Term loan requirement as per the business project reports
- All possible bank records of the bank account under the name of the business and participating shareholders.
- All building plan estimates and quotations that come with it.
- State and sales of the current financial year in a month-wise record catalog. This includes the value of the goods, the value of the stocks and even the records of any debts and credits.
- A certificate of pollution control and sanction letter from electricity and other bodies must be procured.
- Deeds like partnership deed, by-laws, trusts and memorandums and rules also need to be provided.
MSME registered by the Indian Government
5 to 7 years (can be 11 years in exceptional cases)
~Working Capital Limits
~ Non-Fund Base Limits
For availing loans through the Bank Credit Facilitation scheme, any MSME unit needs to approach the officer of NSIC branch and must submit their application for the requirement of the loan at any of the banks where the applicant has an account, but these banks must have a tie-up agreement or one can apply at any of bank registered under this scheme. The branch officer helps the person throughout the application process and helps one get the correct & right documentation that is required for submitting an application at the bank.
The documents that are submitted by the MSME unit must be as per the checklist provided by the banks to avail loans. It is mandatory for an applicant to have or open an operative bank account with KYC completed along with proper address proof, ID proof, etc as required by banks.
Although the loan repayment tenure varies from bank to bank and on the income generation from MSME units but generally the loan repayment term usually ranges from 5 to 7 years. In some exceptional cases, it can be extended upto 11 years. There are on-demand refundable capital finance limits available for one year. There are self-liquidating, specific loans that are connected to the general tenor of the transactions. Linked to natural periods of transaction are the self liquidating loans like export credit, bill finance, etc.
Credit Support Bank Credit Facilitation Scheme
There is need based credit support. There are various term loan limits fixed by various banks. The working capital limits of units upto Rs 5 crores, there assessed requirement is 25% of the expected turnover for the next year. So the working capital would be 20% of the expected turnover and the balance will be arranged through loans or equity by the promoters. For over 5 crore limit, to determine working capital requirement the Maximum Permissible Bank Finance Method is used.
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Bank Credit Facilitation Scheme FAQs:
1. What are the benefits of Bank Credit facilitation?
the benefits of bank credits are:
~easily availability of credit for micro, small and medium enterprises or MSMEs.
~allowing for better finances from a bank for MSMEs
~helping businesses in getting better interest rates.
2. What is the general repayment period for loans?
The period of loan repayment from time to time depends on the MSME taking the loan and the income it generates. Although in general, the repayment period ranges from 5 years to 7 years.
3. What does a Bank Credit Facilitation Scheme do?
the main aim of the Bank Credit Facilitation Scheme is to have the NSIC aid MSMEs in help in the filing documentation during submission of loan proposals to a national and private bank. This is to assist in building credit support for loan proposals and other such activities free of cost.
4. Is there any fee for applying under the Bank Credit Facilitation scheme?
No, there is no cost or processing fee charged from the MSME for applying for a loan under this scheme.
5. Is KYC compliance needed to avail a loan under this scheme?
Yes, the loan applicant should have a KYC compliant operative account with a proper introduction, and proofs as stated by the bank.
6. Does Bank Credit Facilitation Scheme help in changing bank accounts?
Among the various features of the Bank Credit Facilitation scheme, getting aid in switching banks accounts in one of them.
7. How to get a Bank Credit Facility from NSIC?
To get a Bank Credit Facility, visit the official NSIC website and download, fill and submit the loan application form which can be found under the Bank Credit facilitation tab.
8. What is a Micro-Enterprise?
Mirco enterprises are businesses that have an original value of the investment in plant and machinery up to Rs.25 lakh as a manufacturing enterprise and Rs. 10 lakh investment as a service enterprise.
9. What are the margin norms for MSME loans?
The same applies to the rate of interest for the loan.
10. What is the repayment schedule for working capital?
Generally, working capital finance limits are valid for a single year and are repayable on demand.
11. What is the interest rate charged by the bank for these loans?
The interest rate varies from bank to bank.