MSMEs Don’t Need Fresh Loans, Even With Government Guarantee

MSMEs do not need fresh loans – This is strange but true, they do not need any loan even with the Government Guarantee. The major reason,they are not sure how much demand will be there for their products when they resume business activity. They are more concerns about demand generation than loan requirements. 

Micro, small and medium enterprises (MSMEs) expected a direct cash relief from the government in terms of waiving of electricity bills, payment of salaries, other statutory dues than relief package in the form of fresh loan. MSME’s are in opinion that a direct benefit transfer (DBT) support would have helped MSMEs face the crisis better.

ON what basis they would go with the fresh loan, it does not make sense, since new contracts are not being awarded for the past two months. Most MSMEs have not been able to restart the business post lockdown because of supply issues and labour availability. A major part of the industry is staring at job losses as companies have been cash-strapped for two months now.

MSMEs industry had three major demands from the government – meeting salaries and interest payments during the lockdown period, and easy access to loans, so they had cash to restart.

Last week, finance minister Nirmala Sitharaman unveiled the economic package for MSMEs with ₹3 lakh crore collateral-free automatic loans for small businesses and two separate funds to provide equity support. Additionally, the government also changed the definition of MSMEs, linking it to turnover limits so that such businesses can grow without losing benefits. Read for fresh classification of MSMEs on turnover basis.

It is believed that in true sense only 10% of MSMEs will be benefited with this ₹3 lakh crore worth of loans package. This is available for existing MSME borrowers with up to ₹25 crore outstanding, and ₹100 crore turnover. The loan amount can be maximum of 20% of the outstanding.