How To Apply For Loan Under CGTMSE
How To Apply For Loan Under CGTMSE, Do you have the basic entrepreneurial qualities of establishing an enterprise of your own for earning money? There are three options for you; namely, Manufacturing, Trading and Providing Services. Manufacturing involves the Management of 5 Ms, namely Man, Market, Machine, Materials and Money. Of all these, Money has the most important role to play. If you have the required money, you can proceed ahead. Manufacturing involves the ‘risk factor’, which you must be prepared to accept. Trading involves, purchasing of goods and commodities and selling the same, with added profit, either at wholesale or at retail. Here the risk factor is the least. Providing Service involves rendering of professional or technical services against certain service charges.
All the above means of businesses call for investment of ‘Money’ or funds for carrying out your own business. Technically, your own money is known as equity and the money borrowed from external sources is known as ‘debts’. The ideal debt-equity ratio is 2:1. If you are a first generation entrepreneur, ‘funds’ may pose a big constraint for you. If your equity does not suffice, you will have to borrow either from your friends or relatives or from the financing institutions such as banks, State Financial Corporations, Regional Rural Banks (RRBs). But, all the financial institutions ask for collateral security such as mortgage of land or building and also third party security. As a result, many entrepreneurs were deprived of establishing their own micro or small enterprises. Hence, the Government of India introduced the cgtmse scheme, during 2000.
Credit Guarantee Scheme Details
On August 2000, a trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was launched. The chief objective of this trust was to enable the micro and small enterprises to get loans from financial institutions, without having to pledge any collateral securities or third party guarantee. The Ministry of Micro, Small and Medium Enterprises and the Small Industries Development Bank of India (SIDBI) has committed for corpus fund of Rs 2500.0 crores, in the ratio of 4:1. The declared Member Lending Institutions (MLI) is eligible to avail this facility, in the event of failure of repayment of loans by the eligible micro and small enterprises. As on 31st May, 2016, there were 133 eligible MLIs that included 26 Public Sector Banks, 21 Private Sector Banks, 73 Regional Rural Banks (RRB), 4 Foreign Banks and 9 other institutions.
The credit facility, for both Term Loan and Working Capital Loan is limited to Rs 100 lakhs. Micro and Small enterprises that may become sick due to factors beyond the control of management, and the rehabilitation assistance provided by the MLIs are eligible to get the defaulted amount. The defaulted amount includes the principal and interest, lying outstanding against the borrower, on the date, it was declared as Non-Performing Asset (NPA). The guarantee covers up to 75 % of the credit facility up to Rs 50 lakhs and 85% forloans up to Rs 5 lakhs, provided to micro enterprises and 80% of MSEs, owned and operated by women entrepreneurs. The MLIs are to pay an Annual Guarantee Fee (AGF) at the rate of 1% of the credit facility sanctioned. You can get further information in this regard by visiting the website of CGTMSE at www.cgtmse.in.
It is most important to know here that the first beneficiary of the credit guarantee scheme is the Member Lending Institution (MLI). The MLI only can apply to the Credit Guarantee Trust for getting back a portion of the Defaulted amount. You, as an entrepreneur can neither apply directly to the CGT, nor can get immediate relief, if due to any inevitable reasons, beyond your control, your enterprise has gone sick and you are not in a position to pay back of your debt, you cannot get immediate relief from CGTMSE. The MLI takes a number of steps for recovery of the debt and only after, it has failed in its effort, can apply for getting a part of the defaulted amount. There are a number of steps usually taken by the lending Institutions before lodging their final claim to the CGTMSE. Under the legal proceeding, they resort to Filing a suit with Debt Recovery Tribunal (DRT) or other judicial authority and the final settlement with MLI and the borrower may take a long time that may vary from a minimum of 5 years to 10 years
How to Apply for loan under CGTMSE
Because of the risk and uncertainty associated with establishing and managing a micro or small enterprises; the most important element is your conviction on the sentence; “I can do it and I must do it”. The next requirement is your traits of 3 Ps, Patience, Persistence and Perseverance. You can then proceed in the following manner.
- Identify Your project
The first requirement is the market survey, total market demand, the existing local units in the line, availability of raw materials and skilled hands, and infrastructural facilities such as land, government sponsored industrial estates, electricity, water and transportation. It may be a little easier if you have earlier experience in marketing or production. Prepare a Project Reporting indicating the technical and economic viability. You can do it by collecting data or you may obtain suitable Project Reports from professional Consulting Firms. The project Report must indicate your fund requirement, both for Term Loan for Fixed Assets and Working Capital required for purchase of raw materials inventory of Finished Goods and WIP
- ,Organizational Structure and Application
Usually, the organizational structure of micro and small industries is Sole Proprietorship. In certain cases, it may be Partnership firm, in which case, you will have to prepare a partnership deed, usually prepared by Chartered firms. Select a suitable name for your enterprises and get it registered with your District Industries or the Khadi & Village Industry Corporation (KVIC). Mostly, these two government agencies are responsible to access the technical and economic viability of the suggested project
- Establish Rapport with Lending Intuitions
While the State Financial Corporation provides funds for Fixed Assets, the Banks provide fund, both for Term Loan and Working Capital. Before submitting your application for CGTMSE loan, draw out your projected profit & Loss Account and balance Sheet, Cash Flow statements and Schedule of loan repayment, which should be most realistic and acceptable by your Lending Institutions. The Lending institutions have their own format for submission of application. You have to submit you loan application to the Lending Institution, which after due evaluation, assessment and on submission of requi9red documents, may approve or reject your proposal, depending upon its economic viability an the criteria prescribed by CGTMSE.
Note:-For More Details About Loan Under CGTMSE Please Visit Given Website
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