FAQs on Collateral Free Loans

Is it compulsory for the borrower to obtain Income Tax Permanent Account Number [IT-PAN] to be an eligible borrower?

Under the Guarantee Scheme, a borrower is required to obtain IT PAN number prior to availing of credit facility from the eligible lending institution. Also it is a mandatory requirement under section 139A(5) read with section 272(C) of the I.T Act 1961 to indicate IT PAN on all tax documents which include returns, challans, appeals, etc. However, in respect of loans up to Rs. 10 lakh, CGTMSE is presently not insisting that the IT PAN be obtained at the time of availing of the guarantee cover. IT Pan No. is to be indicated in respect of credit facility above Rs.10 lakh.

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Is it necessary that a borrower to be eligible, should obtain all the required credit facilities from a single institution?

Credit facilities can be extended by more than one bank and/or financial institution jointly and/or separately to eligible borrower upto a maximum upto Rs.100 lakh per borrower subject to ceiling amount of individual MLI or such amount as may be specified by the Trust.

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What is the quantum of credit facility that can be covered under the Scheme?

Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit facilities up to Rs.100 lakh per eligible borrower are covered under the guarantee scheme provided they are extended purely on the project viability without collateral security or third party guarantee.

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Can a credit facility of over Rs. 100 lakh be covered under the Scheme?

Yes, provided that the entire credit facility is extended without any collateral security and it is otherwise eligible for a guarantee cover under the Scheme. The guarantee cover available will be restricted to credit of Rs. 100 lakh even though credit extended is more than Rs. 100 lakh to an eligible borrower. In other words, maximum of credit risk borne by CGTMSE is restricted to Rs.62.50 lakh being 75% or Rs 65 lakh being 80% as the case may be.

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What would be the guarantee / service fee that would be payable by the member-lending institution on credit facility sanctioned in excess of Rs. 100 lakh?

Presently, guarantee fee is payable @1.5% (0.75% in case of North Eastern Region including state of Sikkim) on the credit facility agreed to be covered by the Trust. In this case, maximum of Rs. 100 lakh would be extended guarantee cover even though the sanctioned amount exceeds Rs. 100 lakh. Similarly, the Annual service fee would be payable @0.75% on the guaranteed amount subject to a ceiling of Rs. 100 lakh.

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Can term loan or working capital facility alone be extended by an eligible lender and still be covered under the guarantee scheme?

Yes, a lender can extend either term loan or working capital facility alone and still be eligible for a guarantee cover if it meets the other eligibility parameters. Needless to say, the credit facility extended to a borrower should be without any collateral security and/or third party guarantee.

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Up to what extant CGTMSE provides guarantee cover for the credit facility extended by MLIs to eligible borrower?

CGTMSE provides  a guarantee cover up to 75% of the amount in default subject to a maximum of Rs.62.50 lakh. However the extent of guarantee cover is 85%,under following case: (a) Credit facilities up to Rs. 5 lakh extended to Micro Enterprises. Also the extent of guarantee cover is 80%, subject to a maximum of Rs.65 lakh under following cases. (a) For micro and small enterprises operated and/ or owned by women irrespective of amount (b) Credit facilities to units in the North Eastern Region (including State of Sikkim) irrespective of the amount.

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What is the difference between primary security and collateral security?

Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. Collateral security is any other security offered for the said credit facility. For example, hypothecation of jewellery, mortgage of house, etc.

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How is the service fee payable for the first year?

In the first year of coverage of each guaranteed unit, the Annual Service Fee is worked out on pro-rata basis i.e. at the applicable rate of fee charged for the period (no. of days) of outstanding, starting from the date of commencement of the guarantee cover till March 31. For calculation of Annual Service Fee, number of days in a year is taken as 365. For subsequent years, service fee is charged for the whole year, on the credit facility guaranteed except for terminal year or closed cases where it is on pro rata basis.

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Can the Micro and small entrepreneurs / borrowers approach the Trust directly to seek guarantee for the credits sanctioned by the Banks?

CGTMSE gives guarantee to its MLIs. Therefore, entrepreneurs in the Micro and small enterprises sector have to approach the Banks or financial institutions (who have already registered with the Trust as MLIs) with their viable proposals for their credit requirements. The List of MLIs of the Trust can be seen at CGTMSE's web-site at http://www.cgtmse.in or www.cgtsi.org.in

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What is a collateral free loan?

A collateral free loan is one which does not require hypothecation of any assets(like property etc.) as a guarantee.

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What are the eligible lending institutions under the Scheme?

All Scheduled Commercial Banks (either PSU, Private or Foreign Banks), select Regional Rural Banks, or such of those institutions as may be directed by GOI can avail of guarantee cover in respect of their eligible credit facilities under the Scheme. Small Industries Development Bank of India (SIDBI), National Small Industries Corporation Ltd (NSIC) and North Eastern Development Finance Corporation Ltd (NEDFI) have been included as eligible institutions.

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Where do I get a collateral free loan?

Most of the major Public and private sector banks provide a collateral free loan. Please find a detailed listing here

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Which type of borrowers can be covered under the Scheme?

New and existing Micro and Small Enterprises engaged in manufacturing or service activity excluding 'Retail Trade'.

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What is the amount available (or the ceiling)?

The ceiling for a collateral free loan as per CGTSME guidelines is Rs. 100 Lakhs.

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Are borrowers from all service sector enterprises eligible under the Scheme?

As of now, all activities that come under service sector as per RBI's guidelines on 'Lending to Priority Sector' and MSMED Act, 2006 except retail trade are eligible for coverage under the scheme.

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How do I ask for it?

Visit any of the banks(link) and additional details can be found here(link) .

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