SME Funding Options

SMEsFundingOptions
05thJune2020
WIRC,InstituteofCharteredAccountantsofIndia
CA.SudhaG.Bhushan
||9769033172||Sudha@taxpertpro.com

• MSME
• What is an MSME
• How the definition of MSME has changed? Are
you an MSME?
• If you are an MSME – Are you registered as
MSME to avail various benefits.
• Benefits available
• Priority sector Lending
• Protection from delayed payment
• others
• Funding
• Under Covid 19
• Government stimulus package
• Subordinated debt
• Others
• Treds
• SME listing
✓ BSE SME
✓ NSE Emerge
TopicsofDiscussion
2

WhatisMSME….?
MSME stands for Micro, Small, and Medium Enterprises.
3
Classification Micro Small Medium
Mfg. Enterprises Investment < Rs 25 lac Investment < Rs 5 Cr. Investment < Rs 10 Cr.
Service Enterprises Investment < Rs 10 lac Investment < Rs 2 Cr. Investment < Rs 5 Cr.
Classification Micro Small Medium
Existing and Revised Definition of MSMEs
Existing MSME Classification
Criteria : Investment in Plant and Machinrey or Equipment
Manufacturing &
Services
Investment < Rs 1 Cr. &
Turnover < Rs 5 Cr.
Turnover < Rs 50 Cr
Turnover < Rs 100 Cr.
Revised MSME Classification
Composite Criteria : Investment and Annual Turnover
CA. Sudha G. Bhushan || 09769033172||Sudha@taxpertpro.com

WhatisMSME….?
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WhatisMSME….?
Add a footer 5

WhatisMSME….?
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BenefitsAvailable
7CA. Sudha G. Bhushan || 09769033172||Sudha@taxpertpro.com

MajorBenefits
• Protection against Delayed Payments
• Subsidy on Patent Registration
• Mandatory 25 percent procurement from MSMEs by CPSEs
• Interest Subvention Scheme
• Mandatory registration on TReDS
• Priority Lending

9
✓ As per Section 15 of the MSMED Act,2006 any person
who deals with Micro | Small or Medium Enterprises is
liable to make payment within 45 days of the
agreement or acceptance of goods or services.
✓ If amount not paid within 45 days than the said
person will be liable to pay compound interest at
three times of the bank rate notified by the Reserve
Bank as per the Section 16 of the MSMED Act,2006.
✓ If any Company having dues to MSME for more than
46 days it required to file half yearly return on 31st
October and 30th April under Form MSME-I as per
“Specified Companies (Furnishing of information
about payment to Micro & Small Enterprise Suppliers
) Order ,2019” issued by MCA on 22nd January,2019
Protection against Delayed
Payments

10
One-time restructuring of existing loans to MSMEs classified
as 'standard' without a downgrade in the asset classification
is permitted, subject to the following conditions:
✓ The aggregate exposure, including non-fund based
facilities, of banks and NBFCs to the borrower does not
exceed ₹25 crore as on January 1, 2020.
✓ The borrower’s account was in default but was a
‘standard asset’ as on January 1, 2020 and continues to be
classified as a ‘standard asset’ till the date of
implementation of the restructuring.
✓ The restructuring of the borrower account is
implemented on or before December 31, 2020.
✓ The borrowing entity is GST-registered on the date of
implementation of the restructuring. However, this
condition will not apply to MSMEs that are exempt from
GST-registration. This shall be determined on the basis of
exemption limit obtaining as on January 1, 2020.
Restructuring of Advances

11
The Public Procurement Policy for Micro and Small
Enterprises (MSME) order 2012 has mandated Every Central
Ministry/Department/PSU shall set an annual goal for
procurement from the MSE sector at the beginning of the
year, with the objective of achieving an overall procurement
goal of minimum 25 per cent of the total annual purchases
from the products or services produced or rendered by
MSEs. Out of 25% target of annual procurement from MSEs.
MSME Sambandh

StimulusPackage

OverallStimulusPackage

Part1
• Pradhan Mantri Garib Kalyan Package
• Automatic collateral free loans: INR 3 trillion (~ US$ 40 billion)
• Subordinated debt for MSMEs: INR 200 billion (~ US$ 2.67 billion)
• Fund of funds for MSMEs: INR 500 billion (~ US$ 6.67 billion)
• Global tenders to be disallowed upto Rs 200 crores
• Rs. 2500 crore EPF Support for Business & Workers for 3 more months
• EPF contribution reduced for Business & Workers for 3 months- Rs 6750 crores Liquidity Support
• Rs 30,000 crore Special Liquidity Scheme for NBFCs/HFCs/MFIs
• Rs 45,000 crore Partial Credit Guarantee Scheme 2.0 for NBFCs
• Rs. 90,000 Cr. Liquidity Injection for DISCOMs
• Extension of Registration and Completion Date of Real Estate Projects under RERA
• Rs 50,000 crores liquidity through TDS/TCS rate reduction

Part2
• Direct Support to Farmers & Rural Economy provided post COVID
• Liquidity Support to Farmers & Rural Economy provided post COVID
• Support for Migrants and Urban Poor during last 2 months
• MGNREGS support to returning Migrants
• Labour Codes - Benefits for Workers
• Free Food grain Supply to Migrants for 2 months
• Technology Systems to be used enabling Migrants to access Public Distribution System (Ration) from any Fair
Price Shop in India by March 2021 - One Nation One Ration Card
• Affordable Rental Housing Complexes (ARHC) for Migrant Workers / Urban Poor
• Rs. 1500 crores Interest Subvention for MUDRA-Shishu Loans
• Rs 5000 cr Special Credit Facility for Street Vendors
• Rs 70,000 crore boost to housing sector and middle income group through extension of CLSS
• Rs 6000 crore employment push using CAMPA funds
• Rs 30,000 crores Additional Emergency Working Capital Funding for farmers through NABARD
• Rs 2 lakh crore Concessional credit boost to 2.5 crore farmers through Kisan Credit Cards

Part3
• Amendments proposed in the Essential Commodities Act, 1955 (ECA)
Better price realisation by attracting investments and making agriculture sector competitive.
Deregulation of agricultural foodstuff, including cereals, edible oils, oilseeds, pulses, onions and potato. Stock limit
will be imposed only under very exceptional circumstances such as national calamities, famine, with surge in prices
of agricultural produce. For food processing and exporters, limits will be linked to capacity and export demand.
• Legal framework for agriculture produce price and Quality Assurance to be implemented
Risk mitigation for farmers, assured returns, quality standardization.
Facilitative legal framework will be created that will enable farmers to engage directly with processors,
aggregators, large retailers, exporters, etc. in a fair and transparent manner.

Part4
• Policy reforms to fast-track investment and upgradation of industrial infrastructure
• Coal sector reforms – End of Government Monopoly
• Mining sector reforms
• Defence production
• Aviation sector
• Power Sector
• Atomic energy related reforms
• Social infrastructure
• Space - Private sector to be a co-traveller

Part5
• Additional allocation of funds for Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
or reforms
• Health reforms and initiatives
• Policy reforms to facilitate technology driven education with equity and technology systems
• Relaxation in IBC matters
• Decriminalisation of offences under the Companies Act, 2013 (2013 Act)
• Improving fund raising opportunities for Indian companies
• Ironing out certain procedural aspects of Indian corporate laws
• Public Sector Enterprise (PSE) policy
• Proposal to link enhanced borrowing by states to specific reforms

StimulusPackage–RelatedtospecifictoMSME

Funding

• Emergency Credit Line Guarantee
Scheme
• Subordinate Debt for Stressed MSMEs
• Equity infusion for MSMEs through
Fund of Funds
• Others
22
Liquidity Infusion directly to MSMEs

EmergencyCreditLine
GuaranteeScheme
23

EmergencyCreditLineGuaranteeScheme(ECLGS)
OperationalGuidelines
CREDIT PRODUCT
For which guarantee would be given
‘Guaranteed Emergency Credit Line
(GECL)’
24CA. Sudha G. Bhushan || 09769033172||Sudha@taxpertpro.com 24

• To provide 100% guarantee coverage for the GECL,
which shall be a pre-approved sanction limit of up
to 20% of loan outstanding as on 29th February,
2020 to eligible borrowers,
• in the form of additional working capital term loan
facility (in case of banks and Financial Institutions),
and additional term loan facility (in case of NBFCs)
from all Member Lending Institutions (MLIs)
• to eligible Business Enterprises / Micro, Small and
Medium Enterprise (MSME) borrowers,
• including interested PMMY borrowers , in view of
COVID-19 crisis, as a special Scheme.
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Purpose of scheme

PURPOSE OFTHE SCHEME
Provide 100% guarantee coverage for the
GECL
Be a pre-approved sanction limit of up to 20% of loan
outstanding as on 29th February, 2020
To eligible borrowers
In the form of additional working
capital term loan facility (in case of
banks and Financial Institutions)
In the form Additional term loan
facility (in case of NBFCs)
FROM
all Member Lending
Institutions (MLIs)
TO
Eligible Business
Enterprises / Micro, Small
and Medium Enterprise
(MSME) borrowers,
including interested
PMMY borrowers

EmergencyCreditLineGuaranteeScheme(ECLGS)
OperationalGuidelines

• All MSME borrower accounts with combined
outstanding loans across all MLIs of up to Rs. 25 crore as
on 29.2.2020, and annual turnover of up to Rs. 100 crore
in FY 2019-20.
• The Scheme is valid only for existing customers on the
books of the MLI.
• Borrower accounts should be classified as regular,
SMA-0 or SMA-1 as on 29.2.2020. Accounts classified as
NPA or SMA-2 as on 29.2.2020 will not be eligible under
the Scheme.
• The MSME borrower must be GST registered in all
cases where such registration is mandatory. This
condition will not apply to MSMEs that are not required
to obtain GST registration.
• Loans provided in individual capacity will not be
covered under the Scheme.
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Eligibility Criteria

2929
Eligibility Criteria
Nature of the
activity/facility
Scale of
business
Existing
customer of
the MLI and
Performance
of the loan
Size of the
existing facility
Turnover for
FY 2019-20
GST
registration

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➢ Scheme is meant only for business loans. Hence, the nature of activity
carried by the entity must be a business, and the facility must be for the
purpose of the business.
➢ A LAP loan was granted to a business entity. The loan was granted against a self-owned house, but the purpose of the
loan was working capital for the retail trade business carried by the borrower. Will this facility be eligible for GECL?
Nature of Activity

31
➢ means all Business Enterprises / MSME institution borrower accounts with
outstanding loans of up to Rs. 25 crore as on 29.2.2020,
➢ and annual turnover of up to Rs. 100 crore in FY 2019-20.
In case accounts for FY 2019-20 are yet to be audited/finalized, the MLI may rely
upon the borrower’s declaration of turnover.
The Scheme is valid for existing customers on the books of the MLI.
Borrower accounts should be less than 60 days past due as on 29th February,
2020 in order to be eligible under the Scheme.
“Eligible borrower”

Eligible Borrowers
All Business Enterprises
/MSME borrower accounts
combined outstanding loans
across all MLIs of up to Rs. 25
crore as on 29.2.2020
Annual turnover of up to Rs.
100 crore for FY 2019-20
AND
Loans provided to Business
Enterprises / MSMEs constituted as
Proprietorship, Partnership,
registered company, trusts and
Limited Liability Partnerships (LLPs)
Business Enterprises / MSMEs
would include loans covered
under Pradhan Mantri Mudra
Yojana extended on or before
29.2.2020, and reported on the
MUDRA portal.
3232

Eligible Borrowers
Loans having
co-applicant,
only those
existing loans
where entity is
the primary co-
applicant
It is not necessary
that the existing
loans of the
borrowers should
be covered under
the existing
NCGTC or
CGTMSE Scheme.

An ‘opt-out’ option should be provided to the eligible Business Enterprises / MSME
borrowers to enable them to choose whether they wish to opt out of the GECL facility.

An ‘opt-out’ option should be provided to the eligible Business Enterprises / MSME
borrowers to enable them to choose whether they wish to opt out of the GECL facility.
This is a pre-approved loan. An offer will go out from the MLI to the eligible borrowers for a
preapproved loan which the borrower may choose to accept.
If the MSME accepts the offer, it will be required to complete requisite documentation. Thus, an ‘opt-
out’ option will be provided to eligible borrowers under the Scheme, i.e., if the borrower is not
interested in availing the loan, he/she may indicate accordingly.

NOT ELIGIBLE
Loans provided in individual capacity Business Enterprises / MSME borrower accounts
which had NPA or SMA-2 status as on 29.2.2020

37
My EMIs are due on 10th of each month. On 10th Feb., 2020, the borrower had two missing
EMIs, viz., the one due on 10th Jan. 2020 and the one due on 10th Feb., 2020. Is the
Borrower an Eligible Borrower on 29th Feb., 2020?
Performance of the loan

38
The manner of counting DPD is –
• we need to see the oldest of the instalments/principal/interest due on the reckoning date.
• Here, the reckoning date is 29th Feb. On that date, the oldest overdue instalment is that
of 10th Jan.
• This is less than 59 DPD. Hence, the borrower is eligible.

39
ABS private limited EMIs are due on the 1st of each month. The borrower has
not paid the EMIs due on 1st Jan. and 1st Feb., 2020. Is the Borrower an Eligible
Borrower on 29th Feb., 2020?

40
On the reckoning date, the oldest instalment is that of 1st Jan. 2020. Since the
reckoning date is 29th Feb., we will be counting only one two dates – 1st Jan
and 29th Feb. The time lag between the two adds to exactly 59 days.
The borrower becomes ineligible if the DPD status is more than 59 days. Hence,
the borrower is eligible.

“Member Lending Institution(s)” (MLI)
NBFC: "Non-Banking Financial Company” means a non-banking
financial company as defined in clause (f) of section 45-I of the
RBI Act, 1934 and which has its principal business as defined by
RBI and has been granted a certificate of registration under sub-
section (1) of section 3 of the Act.
All NBFCs which have been in operation for 2 years as on 29th
February, 2020 would be eligible under the Scheme.
Financial Institutions: As
defined in sub-clause (i) of
clause (c) of Section 45-I of
Reserve Bank of India Act.
Banks: All
Scheduled
Commercial Banks.

I am not a registered MSME and operate a general/retail business. My account was NPA as on 29th Feb,
2020. Am I eligible for ECLGS?

I am not a registered MSME and operate a general/retail business. My account was NPA as on 29th Feb,
2020. Am I eligible for ECLGS?
✓ Accounts that are NPA or where overdues have crossed 60 days (SMA-II) are not eligible under ECLGS.
4343

44
• DURATION• DATE OF COMMENCEMENT
Shall come into force from the date
of issue of these guidelines by
NCGTC.
The period from the date of issue of
these guidelines by NCGTC to
31.10.2020, or till an amount of Rs
3,00,000 crore is sanctioned under
the GECL, whichever is earlier.

45
Nature of account and Tenor of Credit under the Scheme

NatureofaccountandTenorofCreditundertheScheme
✓ A separate loan account should be opened for the borrower, distinct from the existing loan account(s).
✓ The tenor of loans provided under GECL shall be for a tenor of four years from the date of disbursement. No pre-
payment penalty shall, however, be charged by the MLIs in case of early repayment.
✓ Moratorium period of one year on the principal amount shall be provided, during which interest shall be payable.
✓ The principal shall be repaid in 36 installments after the moratorium period is over.
✓ Pre-payment of facilities to be allowed at no additional charge to the borrower.
✓ The account may be operated in combination with applicable Interest Subvention Scheme(s) as far as feasible
✓ RBI’s approval has been solicited for keeping risk weight for loans provided under GECL at zero.

47
outstanding loans across all MLIs of up to Rs. 25 crore as
on 29.2.2020

WhetherthethresholdlimitofoutstandingcreditofRs.25crores,will
havetobeseenacrossallthelenders,theborroweriscurrently
dealingwith,orwithonesinglelender?
TheSchemespecificallymentionsthatthelimitofRs.25croresshallbe
ascertainedconsideringtheborroweraccountsofthebusiness
enterprises/MSMEswithcombinedoutstandingloansacrossallMLIs.For
thepurposeofdeterminingwhetherthecombinedexposureofallMLIsis
Rs25croresornot,thewillingMLImayseekinformationaboutother
loansobtainedbytheborrower.

ForthethresholdlimitofoutstandingcreditofRs.25crores,arewe
capturingonlyeligibleborrowingsoftheborrower,oralldebt
obligations?
Logically,allbusinessloans,thatis,loans/workingcapitalfacilitiesorother
fundedfacilitiesavailedforbusinesspurposesshouldbeaggregated.For
instance:
Unfundedfacilities,say,L/Csorguarantees,donothavetobeincluded.
Non-businessloans,say,carloans,obtainedbytheentitydonothaveto
beincludedasthesamearenotforbusinesspurposes.

Iftheborrowerdoesnothaveanyexistingcreditfacilityason29th
February,2020,willitstillbeabletoavailfreshfacility(ies)underthis
Scheme?
LookingattheclearlanguageoftheScheme,itseemsthatexistenceofan
outstandingfacilityisaprerequisitetoavailcreditfacilityunderthe
Scheme.TheintentoftheSchemeistoprovideadditionalcreditfacilityto
existingborrowers.

Someexamplesontheeligibility oftheborrowers
Name of the
Borrower
Overall
Outstanding of the
Borrower across
MLIs
(INR Crore)
Overall
Outstanding of
the Borrower
with MLI (INR
Crore)
DPD of borrower
as on 29th Feb
2020 (Days)
Turnover as per
latest available
financials (INR
Crore)
Borrower A 30 15 30 90 Not eligible
Borrower B 30 15 62 90 Not eligible
Borrower C 25 25 59 75 Eligible
Borrower D 15 10 0 80 Eligible
Borrower E 20 10 0 125 Not eligible

• In case a borrower has existing limits with
multiple lenders, GECL may be availed either
through one lender or each of the current
lenders in proportion depending upon the
agreement between the borrower and the MLI.
• • In case the borrower wishes to take from any
lender an amount more than the proportional
20% of the outstanding credit that the borrower
has with that particular lender, a No Objection
Certificate (NOC) would be required from all
other lenders.
• • No NOC will, however, be required if the GECL
availed from a particular lender is limited to the
proportional 20% of the outstanding credit that
the borrower has with that lender.
53
Multiple Lenders

54
Interest

InterestRateofCreditundertheScheme
For Banks and FIs, lending rate linked to one of the external
benchmark rates prescribed by RBI +1% subject to a
maximum of 9.25% per annum.
For NBFCs, the interest rate on GECL shall not exceed 14%
per annum
Since the additional pre-approved facility is to be provided to
existing customers, no additional processing fee shall be
charged by MLIs to borrowers.
No penal interest due to any non-compliance of the already
accepted covenants on the existing credit facilities may be
charged on additional loans during the sanction time.
5555
A moratorium period of one
year on the principal amount
shall be provided for GECL
funding. Interest shall, however,
be payable during the
moratorium period. The
principal shall be repaid in 36
instalments after the
moratorium period is over.

InterestRateofCreditundertheScheme
5656
As part of the scheme overall lending rate is capped 1% above the external benchmark lending rate or
9.25% p.a. whichever is lower. Loans which are allowed not to be benchmarked to external rates shall
be capped at maximum of 9.25%.
For e.g.
For Bank ABC
External Benchmark Lending Rate is 7.80 %; {i.e. RBI Repo Rate (4.0%) + Spread (3.80%)}.
For the purpose of this scheme the lending rate would be
Min of (7.8% + 1% = 8.8% and 9.25%) = 8.8% in this case.
For e.g.
For Bank BNS
External Benchmark Lending Rate is 8.50 %;
i.e. RBI Repo Rate (4.0%) + Spread (4.50%).
For the purpose of this scheme the lending rate would be
Min of (8.5% + 1% = 9.5% and 9.25%) = 9.25% in this case

My lender, which is an NBFC, proposes to charge 15% for the loan. Is this permissible?

My lender, which is an NBFC, proposes to charge 15% for the loan. Is this permissible?
While a NBFC lender can charge a rate of interest higher than 14%, such a loan would not be eligible for
guarantee coverage.

Security
✓ The additional WCTL (in case of banks and FIs)/ Term loan (in case of NBFCs) facility granted under
GECL shall rank pari passu with the existing credit facilities in terms of cash flows and security, with
charge on the assets financed under the Scheme to be created within a period of three months
from the date of disbursal.
✓ No additional collateral shall be asked for additional funding under GECL

Security
Say the primary loan is a working capital loan given to a business and has a residual tenure of 24 months. The
loan is secured by a mortgage of immovable property. Now, GECL facility is granted, and the same has a tenure of
48 months. After 24 months, when the primary loan is fully discharged, can the borrower claim the release of the
collateral, that is, the mortgage?

Security
Say the primary loan is a working capital loan given to a business and has a residual tenure of 24 months. The
loan is secured by a mortgage of immovable property. Now, GECL facility is granted, and the same has a tenure of
48 months. After 24 months, when the primary loan is fully discharged, can the borrower claim the release of the
collateral, that is, the mortgage?
Not at all. The grant of the GECL facility is a grant of an additional facility, with the same collateral. Therefore, until
the GECL loan is fully repaid, there is no question of the borrower getting a release of the collateral.

63
The credit under GECL will rank second
charge with the existing credit facilities in
terms of cash flows (including repayments)
and securities, with charge on the assets
financed under the Scheme to be created
within a period of 3 months from the date of
disbursal.
Clarification dated
2 June 2020

In case where the original loan is an unsecured loan (i.e. with no primary or collateral security), is it required to
create a charge within a period of 3 months as applicable for ECLGS scheme?

In case where the original loan is an unsecured loan (i.e. with no primary or collateral security), is it required to
create a charge within a period of 3 months as applicable for ECLGS scheme?
If the underlying loan is unsecured in nature, no charge is required to be created/extended.
6565

LoanAmounteligibleundertheGuaranteeCoverage
✓ In the form of additional working capital term loan facility (in case of banks and Financial Institutions), and
additional term loan facility (in case of NBFCs) would be up to 20% of their total outstanding loans up to Rs. 25
crore as on 29th February, 2020.
✓ Total Outstanding Amount would comprise of the on-balance sheet exposure such as outstanding amount
across WC loans, term loans and WCTL loans. Off-balance sheet and non-fund based exposures will be
excluded.
✓ MLIs are expected to check with credit bureau the overall outstanding of the borrower to assess the overall
additional loan amount eligible for sanction under the Scheme.
✓ MLIs would be required to open a separate account for Credit Facility extended through the Scheme
✓ Loans extended through PMEGP, PMMY etc. would be categorized under that scheme as earlier. WCTL/Term
Loans under this Scheme shall be over and above the existing loan.

Cont.…
✓ In case a borrower has existing limits with multiple lenders, GECL may be availed either through one
lender or multiple lenders depending upon the agreement between the borrower and the MLI.
✓ In case the borrower wishes to take from any lender an amount more than the proportional 20% of the
outstanding credit that the borrower has with that particular lender, a No Objection Certificate (NOC)
would be required from all other lenders.
✓ No NOC will, however, be required if the GECL availed from a particular lender is limited to the
proportional 20% of the outstanding credit that the borrower has with that lender.
✓ MLIs are expected to have simple and enabling criteria to assess the borrower eligibility. Since the loans
are being provided to existing borrowers it is expected that the time required for due diligence would be
minimal in nature. MLIs should work towards enabling access of this facility to all the eligible borrowers
by educating borrowers regarding the Scheme and steps to avail credit under the Scheme.

ExamplestocalculatetheloanamountcoveredundertheGuarantee
coverage:-
Name of the
Borrower
Overall
Outstanding
of the
Borrower
across MLIs
(INR Crore)
Overall
Outstanding
of the
Borrower
with MLI
(INR Crore)
Total
Maximum
Loan Amount
allowed under
the scheme
(INR Crore)
Total
Maximum
Loan Amount
allowed
without NOC
for MLI
(INR Crore)
A B C= 20% of A D= 20% of B
Borrower A 20 15 4 3
Borrower B 5 2 1 0.4
Borrower C 25 25 5 5
Borrower D 15 10 3 2

Guarantee Fee
Extent of the
Guarantee
Coverage
✓ No Guarantee Fee shall be
charged from the MLIs by NCGTC
for the Credit facilities provided
under the Scheme.
provide 100% Guarantee
coverage on the outstanding
amount for the credit facility
provided under the Scheme as
on the date of NPA.

Invocation of
guarantee
The Member Lending Institutions
(MLIs) are required to inform the
date on which the account was
classified as NPA within 90 days
of the account being classified as
NPA
The Trustee Company shall pay 75%
of the guaranteed amount within 30
days of preferring of eligible claim
by the lending institution, subject to
the claim being otherwise found in
order and complete in all respects.
The balance 25% of the
guaranteed amount will be paid
on conclusion of recovery
proceedings or till the decree
gets time barred, whichever is
earlier.

Appropriation of amount realized by the lending institution
in respect of a credit facility after the guarantee has been
invoked
✓ Post invocation of the guarantee claim, if any recoveries are made in the account, MLIs shall
first adjust such recoveries towards the legal costs incurred by them for recovery of the
amount and shall thereafter remit to NCGTC the balance recoveries.

Few Questions
✓ What is the meaning of the term “business enterprise” which is defined as one of the Eligible
Borrowers?
✓ One of the Eligible Borrowers is an MSME. Is it necessary that the entity is registered i.e. has a
valid Udyog Aadhaar Number, as required under the MSMED Act?
✓ For the borrowers to give a self-declaration of turnover for FY 2019-20, is there a particular
form of declaration?
✓ Is the Scheme restrictive as to the nature of the existing facility? Can the GECL be different
from the existing facility?
✓ Is there a relevance of the residual tenure of the primary facility? For example, if the primary
facility is maturing within the next 6 months, is it okay for the MLI to grant a GECL for 4 years?
✓ Will GECL be extended as a separate loan account, or as part of the existing loan account of
the borrower?

7474
I run a business enterprise and have a GST registration. However, I am not registered as an MSME nor do I have
Udyog Aadhar. My Bank also does not classify me as an MSME borrower. Am I eligbile under the scheme?
You are eligible if
(i) you have total credit outstanding of Rs. 25 Crore or less as on 29th Feb 2020
(ii) your turnover for 2019-20 was upto Rs. 100 Cr.
(iii) You have a GST registration or were not required to obtain such GST registration Udyog Aadhar or
recognition as MSME is not required under this Scheme

7575
My Bank/ NBFC has offered me a pre approved loan of 15% only though the scheme mentions 20%. Can the
Bank/ NBFC do so?

7676
My Bank/ NBFC has offered me a pre approved loan of 15% only though the scheme mentions 20%. Can the
Bank/ NBFC do so?
Under ECLGS, Banks/ NBFCs are to offer loans upto 20%. Actual loan extended can therefore be less than 20%.
This is generally on mutually agreed terms between the borrower and the lender based on factors relevant to
the business operations.

77
My EMIs are due on the 1st of each month. The borrower has not paid the EMIs due on 1st Jan. and 1st Feb., 2020. Is the
Borrower an Eligible Borrower on 29th Feb., 2020?
On the reckoning date, the oldest instalment is that of 1st Jan. 2020. Since the reckoning date is 29th Feb., we will be
counting only one two dates – 1st Jan and 29th Feb. The time lag between the two adds to exactly 59 days. The borrower
becomes ineligible if the DPD status is more than 59 days. Hence, the borrower is eligible.

Description
• MSMEs survive on thin margins and come under financial stress at slightest disruption. To support MSME units which have
become stressed, there is a need to infuse capital in the MSME unit in the form of equity or sub debt so that they can berevived;
• The Distressed Assets Fund–Sub Debt Scheme seeks to extend support to the promoter(s) of the distressed units MSMEs by
providing a debt facility of upto 15% of the promoter contribution or Rs 75 lakhs, to the Promoter(s);
• Promoter(s) in turn will infuse the amount in the MSME unit as equity and thereby enhance the liquidity and maintain debt-
equity ratio.
Nature ofAssistance
Guarantee for fund raising for Revival: GOI will provide guarantee coverage of up to 85% for loans upto Rs. 5 lakh and 75% for loans
beyond Rs 5 lakh to MSMEs for them to raise funds from Financial Institutions.
Salient Features
• The quasi-equity provision with the guarantee balances the risks and rewards between the lender (bank) and the customer. In a
situation where an outright loan is too risky, quasi-equity with guarantee will provide the requisite financing to the company;
• Subordinate debt will be of substantial help in sustaining and reviving the MSMEs which have either become NPA or are on the
brink of becoming NPA.
Distressed Assets Fund - Subordinate
Debt Scheme for MSMEs

Expected Impact
• Provision for sub debt will be of
Rs. 20000 crores which is likely
to benefit two lakh MSMEs;
• A bigger number of MSME
promoter(s) can do business
without worry and avail present
opportunities;
• These MSMEs will continue to
function, provide jobs and
contribute in National
Economy.
• Functioning MSMEs
which are NPA or are
stressed will be eligible
• Promoter(s) of such
units can apply
How to Apply
• Promoter(s) of MSMEs
meeting the eligibility
criteria may approach
scheduled commercial
banks to avail benefit
under the scheme

Description
• MSMEs face severe shortage of equity. The Fund of Funds will provide equity funding for MSMEs with growth potential and
viability with the ultimate aim of encouraging MSMEs to grow and get listed on stock exchanges;
• VCs/PEs firms do offer early stage funding but very few of them provide growth stage funding;
• With Government intervention, this scheme would be able to intermediate different types of funds into underserved MSMEs
and address the growth needs of viable and high growth MSMEs.
Nature ofAssistance
Growth Funding to M SM Es through equity financing: GOI will support VC/PE firms in investing in commercially viable MSMEs in
meeting their growth requirements. The proposed fund of funds will encourage private sector investments in the MSME sector and
leverage Rs.50,000 crore. The actual investment may be even higher.
Private funding leverage: Fund of Funds aims to achieve private funding leverage through the use of professional fund managers with
access to funding and strategic performance oversight. This will help attract a wide range of investors, including financial institutions,
corporate investors, banks, other government funds, HNW individuals to invest into MSMEs.
Salient Features
• Under the scheme, there would be a Mother Fund, where Government of India will be Anchor Investor;
• The Mother Fund can invest daughter funds who can deploy the investments in targeted MSMEs;
• This will create a partnership with MSMEs in their growth journey and enable them to grow bigger and get listed on stock
exchanges.
Equity Infusion for MSMEs through Fund of Funds

Expected Impact
• The scheme is
expected to facilitate
equity financing of
Rs.50,000 crore in the
MSME Sector
• All MSMEs are eligible
How toApply
• Through Investor Funds
onboarded and
registered with
proposed Fund of Funds

TradeReceivableselectronic
DiscountingSystem(TReDS)
84

• An online electronic platform and an institutional mechanism for factoring of trade
receivables of MSME sellers.
• It enables discounting of invoices through an auction mechanism to ensure prompt
realisation of trade receivables.
• RBI had released Guidelines for setting up of and operating TReDS on December 3,
2014.
• The Guidelines outline the requirements and the basic tenets of operating as a
TReDS platform and also prescribes the eligibility criteria for entities desirous of
setting up and operating such a system.

The buyer sends purchase
Order to MSME seller
Financers registered will
Quote their bids against the
factoring unit
Factoring unit to be tagged
as ‘financed’ once the bids
are accepted by MSME’s and
the payment of fund
The seller deliver goods with
invoices / bills of exchange
Each module for a factoring
unit which could be entire
bill amount / in multiple of
pre determined face value
fore financers
On due date corporate
buyers will pay to the
financers
The MSME seller creates a
‘factory unit’ on TReDS
The ‘factory units 'are
verified by the corporates
buyers and TReDS provides a
filtering platform
Unfinanced factoring unit
to be settled with the
corporate buyer outside
the TReDS platform.

Particulars SAFE SAFE Plus SMILE
Objective To finance MSMEs who are manufacturing
any products or providing any services
related to fighting coronavirus such as
permitted drugs, sanitisers, masks, body
suits, overalls, gloves, shoe covers,
ventilators, testing labs, etc. The list is
indicative.
To provide emergency working
capital to MSMEs which are
producing goods and services
directly related to fighting corona
virus, against specific orders form
the government / government
agencies.
A special window available for
financing the healthcare sector
including hospitals, nursing home,
clinics, etc. for their requirements
related to fighting Corona Virus.
Target Customers All existing MSMEs – whether SIDBI’s existing customers or new to SIDBI
customers
SIDBI’s existing customers or new
to SIDBI customers, both are
covered, including greenfield.
Purpose of loan • To purchase any equipment/assets for
manufacturing/service
• To purchase raw material/consumables for
production
* To meet additional
working capital
requirement for
production/service
* To meet capital
investment requirement only
Max Loan Amount
and Loan
Instrument
• INR 200 Lakh (Upto 100% subject to asset
coverage)
• The loan can be availed in any of the two
forms :
1) Term Loan (for equipment machinery)
2)Working Capital Term Loan (for material)
* INR 100 Lakh (linked
turnover)
* The loan shall be given in
the form of
Revolving Working Capital
Term Loan
* Depends on project size. Up to
75% of the project cost.
* The loan shall be given in the form
of Term Loan
Repayment Term loan: Upto 5 years
WCTL : Upto 18 months
4 months of each drawal
Revolving facility
Option 1: Up to 30 months
Option 2: More than 30 months

Particulars SAFE SAFE Plus SMILE
Interest Rate 5% p.a. on reducing balance basis Up to 30 months: 6.02% p.a.
More than 30 months: Normal
rate as per rating and tenure.
Security No collateral As per loan policy.
Turnaround Time • Within 48 hours. 5 days
Validity • Drawals under the scheme shall be valid till 30 September 2020.
Others (if any) * Other guidelines of respective schemes shall continue to be applicable.
* The amount of capital subsidy when received shall be utilized to reduce SIDBI loan and/or for clearance
of SIDBI dues. Rate of interest on loan to be set appropriately considering the interest subvention
available from State Government.
Items covered Permitted rugs, Ventilators, N95 Masks, Eye protection (visor /
goggles), Protective Gowns / Aprons, Medical masks (surgical /
procedure), Shoe covers, IV Fluid – DNS, IV Fluid – Dextrose, IV Sets, IV
Cannula, ICU Beds, Cardiac monitors, Syringe pumps, Portable x-ray
machines, Endotracheal tube, Suction tube, Oxygen cylinders,
Rubber Sheets, testing labs, etc. The list is indicative.
Any capex related to healthcare
sector which helps in fight
against covid-19.

WhySME...IPO??
• High on technology & innovation but face
BIGGEST CHALLENGE in funds raising and in
implementing financial ideas and strategies .
• About 90% of new SME’s born each year fail due
to lack of funding. Therefore, SME entrepreneurs
need to be equipped with financial strategies
which help them to create healthy and wealthy
valuations, raise funds easily and efficiently and
learn to scale up their SMEs to transform to SME
public listed company & raise funds from IPO.

FR
PotentialofSME
• In India, the share of SMEs including registered and unregistered, in GDP is ~30%
whereas contribution of registered SMEs is only 8%. In comparison, the share of SMEs
to the GDP of major economies ranges from 22% to as high as 85%. Thus, SMEs sector
has immense potential for further growth as the contribution of registered SMEs to
GDP in India still low as compared across the leading economies of the world.
Enterprises with following characteristics have great potential in successfully raising
funds through capital market:
92
SME’s with
Financials People Organization &
Business
Proven Track record
&
Strong Growth
Forecast
Dynamic
Management
& Talent Pool
Market leader or
Large presence &
Innovative Products

FR
TheHistory
93
5-Nov-08
•SEBI laysdown broad
framework for SME Listing
platform
Jan-10
•PM Task Force recommends
SME Listing exchange
26-Apr-10
•SEBI circular on Guidelines
for market making
17-May-10
•SEBI Circular rolling out
model listing agreements
for SMEs
18-May-10
•Amendments in SEBI
Regulations (ICDR),
Merchant Bankers etc
31-12-10
•SEBI Master Circular on SME
exchange & Market Making
27-Sep-11
•SEBI approval to BSE SME
exchange
5-Oct-11
•Amendments in Listing
Agreement
14-Oct-11
•SEBI approval to NSE SME
exchange
21-Feb-12
•SEBI Circular standardizing
lot size for SME exchange
13-Mar-12
•BSE SME Exchange launch
19-Apr-12
•BSE Eligibility Norms for
SME Listing

ListingProcess
94
Planning
• Assess the
readiness
• Selection of
Merchant Banker
Preparation
• Restructuring of
Capital and
Valuation
• Offer documents
for IPO
• Due Diligence as
part of IPO
Process
• Submission of Draft
Prospectus
• Verification and Site
Visit
• Approval from
Exchange
Public Offering
• The IPO opens and
closes as per
schedule.
• Submission of
documents as per
Checklist for
finalization of the
basis of allotment
Post Listing
• BSE finalizes the
basis of allotment
and issues the
Notice regarding
Listing and Trading

95
Listing on BSE SME Listing on NSE EMERGE Main Board
Pre Issue
IPO Application Size Not less than ₹ 1 lakh Not less than ₹ 1 lakh ₹ 10,000- 15,000 (BSE)
₹ 5000-7000 (NSE)
Observation on DRHP By the Exchange By the Exchange By SEBI
Post Issue Paid-up Capital (Face Value) Not be more than ₹ 25 crores Not be more than ₹ 25 crores Minimum ₹ 10 crores
Minimum Pre- Tax Operating No such requirement No such requirement At least Pre- Tax operating profit
of ₹ 15 crores (for 3 years out of 5
preceding years)
IPO Grading Not Mandatory Not Mandatory Mandatory
Market Capitalisation/ Issue size No restriction No restriction No restriction
IPO Underwriting 100% underwritten (At least 15% of the
issue size on the books of the
Merchant Banker)
100% underwritten (At least 15% of
the issue size on the books of the
Merchant Banker)
Mandatory (Not required when
75% of the issue is offered for
compulsory subscription of QIBs)
Minimum no. of Allottees in the IPo At least 50 At least 50 At least 1000
Post Issue
Reporting Requirement Half- Yearly (abridged) Half- Yearly Quarterly
Market Making Mandatory Mandatory Not Mandatory

97
Eligibility criteria for listing on BSE SME
Exisiting
Net Tangible Assets : Rs. 3 Crores
(a) Company/partnership/properietorship/ LLP firm / firm which
have converted into company should have combined track
records of at leat 3 years
Non completion of 3 years opertional periodicity then should have
borrowed from a source who have been listed for minimum 2
years on main board or SME board of Exchange
(b) Company/partnership/properietorship/ LLP firm / firm which
have converted into company have positive cash accrual (EBDT)
from its operational.
(c) Net Worth should be positive.
Revised
Rs. 1.5 Crores
(a) Company/partnership/properietorship/ LLP firm / firm which
have converted into company should have combined track
records of at least 3 years
Non completion of 3 years opertional periodicity then should
have borrowed from a source who have been listed for
minimum 2 years on main board or SME board of Exchange
(b) Company/partnership/properietorship/ LLP firm / firm which
have converted into company have positive cash accrual (EBDT)
in any of the year out of last 3 years.
(c) Net Worth should be positive.

Benefits
98
Access to capital and future financing opportunities- Capital for growth, innovation and
acquisitions
Shift of focus from being Tax Compliant to Wealth Creation
Liquidity for Shareholders- Early risk investors get tax benefits on exiting on platorm
Facilitate Acquisitions- Shares are more efficient and cost effective currency substitute
Employee Stock Options- compensating employees without affecting cash flows
Visibility/ Recognition- Improvement in customer Client Credibility

ThankYou
Sudha Bhushan
+91 9769033172
sudha@taxpertpro.com
www.taxpertglobalsolutions.co.in
100

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