Understanding GECL Loan: Benefits and Full Form

In India's constantly evolving business landscape, the contribution of the MSMEs, i.e., the micro, small, and medium enterprises, cannot be stressed enough. They are one of the key drivers of the Indian business and economy at large. In fact, they contribute to about 33% of India’s GDP (Gross Domestic Product) and provide employment to many skilled and unskilled workers.

Despite their significant contribution to the economy and country’s development, many MSMEs face several challenges but can realise their full growth potential. One of the key factors responsible for their limited growth is the lack of capital. Many MSME owners lack capital, and they rely on unauthorised or private lenders to get the funds. This severely limits their growth potential and profits.

To address this critical challenge faced by the MSME owners in India, the government of India introduced many schemes to help them get the desire to start or grow their businesses. One such initiative is the GECL scheme. It was introduced in the year 2020.

What is GECL and its full form?

The GECL loan full form is Guaranteed Emergency Credit Line. This government loan scheme for MSMEs is an integral part of the government’s ECLGS (Emergency Credit Line Guarantee Scheme), which was introduced to provide financial support to MSMEs for the disruption caused in their business due to the COVID-19 pandemic.

Under this scheme, the government of India aimed to offer collateral-free loans of up to 20% of their total outstanding credit as of February 2020. To extend the GECL loans to the MSME owners, the government appointed specific MLIs (member lending institutions), which were backed by NCGTC (National Credit Guarantee Trustee Company Limited).

GECL loan scheme – features and benefits

Now that you know GECL loan meaning, let us look at its unique features and the purposes it serves to the MSME owners.

• Collateral-free loans

  Under the GECL loan scheme, as an MSME owner, if you are eligible, you can avail of a collateral-free loan and get access to the funds you need to start your own enterprise or develop your existing set-up.

  
  

  Collateral-free loans mean you need not provide any security or pledge any asset with the lender against the amount you borrow. Thus, it gives you easy access to the business capital without the fear of losing your asset.

  
  

  Also read: Top 5 Government Loan Schemes for Small Businesses in India

  
  
  
  

• Backed by the government

  The financial support offered to the MSMEs under the GECL loans scheme is 100% guaranteed by the government, giving lenders the assurance of recovering the amount. Thus, it helps reduce the risk associated with lending to financial organisations.




• Extended loan term

  Under the GECL loan scheme, you can avail a loan for a period of up to 5 years. Thus, it allows you to leverage the business opportunity, take your enterprise to the next level, and repay the amount comfortably without compromising your business’s financial needs and limiting its growth potential.




• Loan for all

  The GECL loan scheme has simple eligibility criteria, allowing everyone to leverage its benefits. Thus, you can avail yourself of the funds no matter what kind of MSME enterprise you own.




• Affordable interest rates

  Since the GECL loan is a government of India initiative to empower the MSMEs and give them access to funds they need to grow through legal and authorised channels, the interest rates are capped, and the funds are extended at an affordable rate. This makes the borrowing cost affordable, and you can easily repay the amount.




• Flexibility in loan usage

  The government of India has no limitation on how you can use the funds you avail yourself of through a GECL loan. You have the full flexibility to use it for any purpose you want as you deem fit. You can use it to expand the business operation, pay workers’ salaries, make payments to the suppliers, repay the debt, etc.




• No guaranteed fee needed

  When you apply for a loan under the GECL loan scheme, you do not need to pay any additional guarantee fee, making it easier to take advantage of the funds.




• Prepayment penalty

  Another significant advantage of availing a loan for your business through the GECL scheme is that you need not worry about paying any additional charges or penalties on fully or partially repaying the loan. Thus, it gives you the flexibility to repay the amount ahead of schedule and manage your finances better in line with your business goals.

Conclusion

The GECL loan scheme is an excellent solution for all MSMEs to get the funds they need to repay the outstanding dues and/or grow their business operations further and realise their fullest potential. It takes away the business owner’s inability to expand their business beyond a certain limit due to capital limitations.

If you are looking for more loan options, apart from government schemes like GECL, you can find a wide range of business loan solutions offered by Udyog Plus, which is part of Aditya Birla Finance Limited. It is one of the leading NBFCs (non-banking financial companies) in India that offers loans for all small businesses at the most competitive interest rates with extended tenure.