Bank Credit Facilitation Scheme – Types Of Loans, How To Apply For Bank Credit Facility?

The bank credit facilitation scheme is a government initiative. This credit scheme simplifies the traditional challenges for business owners to get business loan. Streamlined application process and expanded credit eligibility criteria have empowered SMEs under this scheme. In this blog, we’ll understand the various types of bank loans available under this scheme and the step-by-step process to apply.

What is a Bank Credit Facilitation Scheme?

The bank credit facilitation scheme is a comprehensive government credit scheme that streamlines the process of obtaining business loan for SMEs. The scheme supports SMEs in the following ways.

• It simplifies the bank credit application process, making it more accessible and user-friendly.
• it guides on various types of bank loans available, such as term loans, lines of credit, and working capital loan.
• It offers assistance in meeting bank credit eligibility requirements.
• it connects SMEs with participating banks and financial institutions.

benefits of the scheme

• The scheme often comes with favorable interest rates, making borrowing more affordable for SMEs.
• You can benefit from customized repayment schedules that align with your business’s cash flow patterns.
• The scheme may offer relaxed criteria for business loan eligibility, making it easier for SMEs to qualify.
• Some loans under this scheme like Mudra Loan Scheme may not require collateral, reducing the risk for borrowers.

Types of Loans Available Under the Scheme

1. Term Loans

The government provides term loans under its credit scheme for capital expenditure, such as the purchase of machinery, equipment, or other fixed assets. Businesses can also use them for long-term working capital requirements or business expansion projects.

The eligibility is often based on factors such as business turnover, credit score, and years in operation. The term loan amount can vary based on the business’s needs. Term loans typically have a longer repayment period of 1 to 7 years. The interest rates for term loans are competitive, with some government-backed schemes offering subsidized rates.

Depending on the loan amount and the specific scheme, these can be collateral free business loan for smaller amounts. Larger loans may require collateral. Interest paid on term loans for business purposes is generally tax-deductible.

2. Non-Fund Based Limits

A non-fund-based limit refers to a type of credit facility provided by banks or financial institutions that does not directly disburse the funds to you. Instead, the bank provides a guarantee on behalf of you to a third party.

Some common types of non-fund based limits are bank guarantees, letters of credit and underwriting commitments. These funds are meant to facilitate international trade, construction projects, or bidding processes.

Instead of charging interest, banks charge commissions for providing these facilities. Also, banks sets a maximum limit up to which it will provide such guarantees.

3. Working Capital Limits

Working capital limit refers to the maximum amount of short-term credit a bank or financial institution is willing to extend you to finance your day-to-day operations.

The operational needs such as – inventory purchases, payroll expenses, rent and utilities, marketing and advertising costs, etc. cause seasonal fluctuations in revenue. FlexiLoans offers business loan upto ₹2.5 crore against your invoices that can fulfill any urgent working capital loan requirement.

Government credit scheme offer varying working capital loan amounts based on the business’s needs and credit eligibility criteria. Lenders offer these loans as a line of credit, allowing you to draw funds as needed and repay them over time.

You can adjust repayment schedules to match your business’s cash flow patterns. Government-backed schemes usually offer lower interest rates compared to traditional business loan.

Eligibility Criteria for Availing Loans

To apply for a bank credit facility under the government’s scheme, you should meet the following general criteria:

• Be registered as a micro, small, or medium enterprise (MSME) with National Small Industries Corporation (NSIC).
• Have been in operation for a minimum of 2-3 years (may vary by lender).
• Demonstrate a consistent revenue stream and profitability.
• Maintain a good credit score (usually 700 or above)
• Have all necessary licenses and permits for the business.
• Comply with tax regulations and have up-to-date tax filings

How to Apply for Bank Credit Facility

1. Initial Assessment and Preparation

Before applying for a bank credit facility, you should:

• Assess your financial needs and determine the type of loan required (e.g., term loan, line of credit, or working capital loan).
• Review bank’s business loan eligibility criteria.
• Research different banks and their specific requirements for the bank credit facilitation scheme.

2. Documentation and Submission

The next step is to gather necessary financial documents and submit the application form. Lenders usually asks the following documents for business loan applications.

• Completed loan application form.
• Business registration documents.
• Business owner’s PAN card and Aadhaar card.
• Bank statements for the last 6-12 months.
• Past 2-3 years Income Tax Return.
• GST returns (if applicable).
• Projected financial statements.
• Business plan detailing the purpose of the loan.
• Collateral documents (if applying for a secured loan).

3. Bank’s Evaluation Process

Once you submit your application, the bank will perform following steps.

• Verify all submitted documents.
• Assess your business loan eligibility based on factors such as credit score, financial health, and repayment capacity.
• Evaluate the purpose of the loan and its alignment with the bank credit facilitation scheme guidelines.
• Perform a risk assessment to determine the appropriate interest rates and loan terms.
• May request additional clarification if needed.

4. Approval and Disbursement

• A formal notice from the bank will detail your approved loan, including the principal, interest rates, and terms for paying it back.
• You should read the loan agreement document carefully before signing.
• You will receive the loan amount in your business current account.

How Loan Amounts Differ by Enterprise Type

Micro Enterprises: A micro enterprise has investment up to ₹1 crore in plant and machinery and has annual turnover up to ₹5 crore. Business loan amounts usually range from ₹10 lakh to ₹1 crore for such enterprise.

Small Enterprises: A small enterprise has investment up to ₹10 crore in plant and machinery and has annual turnover up to ₹50 crore. They can access business loans between ₹50 lakh to ₹2 crore.

Medium Enterprises: A small enterprise has investment up to ₹50 crore in plant and machinery and has annual turnover up to ₹250 crore. They are eligible for loans between ₹2 crore to ₹5 crore under this government credit schemes.

Conclusion

The bank credit facilitation scheme recognizes its role as the backbone of economic growth. The scheme’s focus on sector-specific financing, such as equipment loans and trade credit, demonstrates a detailed understanding of industry-specific challenges. Diverse loan offerings cater to the various needs of businesses, from funding day-to-day operations to financing ambitious expansion projects. The streamlined application process of this scheme enables SMEs to respond swiftly to market opportunities. The relaxed eligibility criteria open doors for promising ventures that might have been overlooked by traditional lending systems. By offering collateral-free options for smaller loans, the scheme encourages innovation and risk-taking among startups and micro-enterprises. More than a financial tool, bank credit facilitation scheme is a tool that boosts the entrepreneurial spirit and economic growth of India.

FAQs

Q1. What is the Bank Credit Facilitation Scheme?

Ans: The bank credit facilitation scheme is a an initiative implemented by the National Small Industries Corporation (NSIC), a government agency under the Ministry of Micro, Small and Medium Enterprises. NSIC has tie-ups with various public and private sector banks to provide credit support to MSMEs. MSMEs registered with NSIC are eligible to apply for assistance under this scheme. This scheme simplifies the loan application process, speeds up business loan approvals, and helps MSMEs access formal credit channels.

Q2. What types of loans are available under this scheme?

Ans: The bank credit facilitation scheme in India offers a various different types of loans. Let us briefly go through a few types.

• Term Loans: For long-term financing needs like purchasing machinery or equipment.
• Working Capital Loans: To help you manage day-to-day operational expenses.
• Technology Upgradation Loans: Specifically for upgrading technology and modernizing operations.
• Trade Credit: To support SMEs involved in export activities.
• Composite Loans: A combination of term loan and working capital loan.

Q3. How does this scheme differ from other government loan programs?

• This scheme acts as an intermediary between banks and borrowers(MSMEs), rather than providing loans directly.
• Bank credit facilitation schemes involve some form of risk-sharing between the government and banks. This include partial loan guarantees to encourage banks to lend to higher-risk MSMEs.
• These schemes targets particular sectors or types of businesses (e.g. MSMEs, startups, or specific industries) that struggle to access traditional bank financing.

Q4. How Mudra Loan Scheme is different from the Bank Credit Facilitation Scheme?

Ans: The Mudra loan scheme and the bank credit facilitation scheme are both government initiative to support small businesses in India. Few of the key differences are highlighted below.

Mudra Scheme	Bank Credit Facilitation Scheme
This scheme focuses on the small enterprises that operate in the informal sector such as street vendors, home based businesses, etc.	Targets a broader range of MSMEs which are more established businesses such manufacturing, healthcare and retail businesses, etc.
It offers smaller loans, up to ₹10 lakh.	This can facilitate larger loans exceeding ₹10 lakh.
This scheme offers lower interest rates due to government backing.	Interest rates under this scheme are market-driven and may be higher
This can be availed when you are starting or expanding micro-businesses.	This can be availed for purposes like working capital, expansion, or technology upgradation.

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