{"id":18985,"date":"2020-11-05T14:05:03","date_gmt":"2020-11-05T08:35:03","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=18985"},"modified":"2020-11-05T14:05:06","modified_gmt":"2020-11-05T08:35:06","slug":"new-debt-facilities-for-distressed-msme","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/","title":{"rendered":"An Overview of New Debt Facilities for Distressed MSME"},"content":{"rendered":"\n<p class=\"has-drop-cap\">COVID 19 is nothing short of a catastrophe for the global economy. Nearly every organization across the globe has affected by this pandemic and MSMEs are not different here.&nbsp; The Indian government had taken some proactive steps in this direction to help the small and medium-class enterprises in terms of financial backing by announcing New Debt Facilities for Distressed MSME.<\/p>\n\n\n\n<p>On May 5, the honorable finance minister unveiled a string of initiatives for MSMEs under the Aatmanirbhar Bharat stimulus package that worth around a Rs 20,000 crore. The scheme named as \u201cDistressed Assets Fund\u2013Sub-ordinate Debt for MSMEs\u201d. The said scheme aims to benefits more than 2 lakh MSMEs across the country. In this article, we will look into the new debt facilities for MSME. <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"710\" height=\"628\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-15.png\" alt=\"Distressed MSME\" class=\"wp-image-18993\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-15.png 710w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/11\/image-15-300x265.png 300w\" sizes=\"(max-width: 710px) 100vw, 710px\" \/><\/figure><\/div>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/#Role_of_MSMEs_during_COVID-19_Pandemic\" >Role of MSMEs during COVID-19 Pandemic<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/#Role_of_Subordinated_Debt\" >Role of Subordinated Debt<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/#What_details_does_Distressed_Assets_Fund%E2%80%93Subordinated_Debt_for_MSMEs_involve\" >What details does Distressed Assets Fund\u2013Subordinated Debt\nfor MSMEs involve?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/#Other_Beneficial_Schemes_Announced_amid_a_Pandemic\" >Other Beneficial Schemes Announced amid a Pandemic<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/#Credit_Scheme_Benefits_for_Subordinated_Debt_for_Promoters\" >Credit Scheme Benefits for Subordinated Debt for Promoters<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/new-debt-facilities-for-distressed-msme\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Role_of_MSMEs_during_COVID-19_Pandemic\"><\/span>Role of MSMEs during COVID-19 Pandemic<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Micro and small scale companies are the backbone of the Indian economy. They address the demands of surging consumption by able to optimize production accordingly. It was MSMEs that responded to the downturn created due to COVID 19 and braced themselves after addressing themselves as an institution after <a href=\"https:\/\/corpbiz.io\/msme-registration\"><strong>MSME Registration<\/strong><\/a> to escalate the production of PPE kit and ventilators.&nbsp;<\/p>\n\n\n\n<p>Many MSMEs acts as intermediary\nmanufacturing hubs for other industries that were under relentless pressure to\nmeet the production demand.&nbsp;&nbsp;<\/p>\n\n\n\n<p>They often render logistic services to\nbigger organizations.&nbsp;But in the absence of required backing, most of the\nMSMEs are facing financial turbulence and seeking new debt facilities for MSME.\n<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Role_of_Subordinated_Debt\"><\/span>Role of Subordinated Debt<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\">What is Subordinated Debt?<\/h3>\n\n\n\n<p>It comes under the category of the\nunsecured loans and it becomes payable only after when other loans are repaid.\nA company\u2019s promoters may invest in the debt of the company. Therefore, his\nclaim would be deemed as subordinate to banks\u2019 claim.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Escalating Non-Performing Assets in MSMEs<\/h3>\n\n\n\n<p>The government, in the past 2 months has revealed multiple incentives such as <em><strong>Atma Nirbhar Bharat<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Atmanirbhar_Bharat\"><em><strong>[1]<\/strong><\/em><\/a><\/sup> and easier credit stipulates for MSMEs, etc. However, it has been witnessed that many MSMEs were grappling to safeguard their existence under the poor economic conditions prevailing even before COVID 19 pandemic.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Subordinated Debt for Promoters<\/h3>\n\n\n\n<p>It was realized by the Indian government the MSME\u2019s promoters were struggling to meet the fiscal obligations.&nbsp;Loans availed by the company\u2019s promoters, credit instruments, and interest payouts add to the hardship. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/can-startups-benefit-from-msme-registration-for-better-govt-support\/\">Can Startups Benefit From MSME Registration For Better Govt Support?<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_details_does_Distressed_Assets_Fund%E2%80%93Subordinated_Debt_for_MSMEs_involve\"><\/span>What details does Distressed Assets Fund\u2013Subordinated Debt\nfor MSMEs involve?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>Following are the details appended by the Government into the scheme:-<\/strong><\/em><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Eligibility for\nthe Scheme<\/h3>\n\n\n\n<p>The small and medium scale companies that\nwere operational and come under the \u201cstressed\u201d category on or before 30\/04\/2020\nare eligible to avail the benefit of the said scheme.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Credit Guarantee\nCover<\/h3>\n\n\n\n<p>The scheme envisions a total pool of twenty\nthousand crore rupees available for the disbursement to MSME\u2019s promoters. The\npromoters of MSMEs are expected to obtain credit from banks intending to\nrenders aid to the frazzled MSMEs. The scheme shall further render an assurance\nto the promoter for the loan availed.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Credit limit\nrelated to the promoters<\/h3>\n\n\n\n<p>The MSME\u2019s promoter under the scheme can\nobtain credit equivalent to fifteen percent of the total stake in the company.\nThis limit will have a computation on equity as well as total debt held by the\npromoter. However, this is capped at a max limit of seventy lakhs.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Accountability\nof the Promoters<\/h3>\n\n\n\n<p>The promoter\u2019s role under this scheme is to\ninculcate the amount availed as a credit guarantee into the equity share in the\ncompany. This would help the company to improve its liquidity as well as the\ndebt to equity ratio.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Moratorium on\nthe Debt<\/h3>\n\n\n\n<p>The scheme will offer a moratorium of 7\nyears applicable to the payment of the principal amount. Moreover, ten years of\ntimeline would be given to the MSME for the repayment of the debt.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Other_Beneficial_Schemes_Announced_amid_a_Pandemic\"><\/span>Other Beneficial Schemes Announced amid a Pandemic<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Here are some additional schemes unveiled during the pandemic, those are as follows:-<\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Collateral Free\nLoan&nbsp;<\/h3>\n\n\n\n<p>Under the purview of the COVID 19 pandemic,\nthe Indian Government has announced the relief credit package for existing MSMEs\nfor worth three lakh crore.&nbsp; The main highlight of the scheme is that it\nprovides collateral-free loans to credit seekers. The scheme prevails under the\nassurance of National Credit Guarantee Trustee Company Ltd through Emergency\nLine of Credit. The interest rate for MSMEs for availing a loan from bank and\nNBFCs has been capped at 9.25 and 14 percent respectively.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">The Moratorium\nfor the Interest Payments&nbsp;<\/h3>\n\n\n\n<p>For already obtained loans, the government\nhas provided relief in interest payment applicable to all term loans availed by\nMSMEs. The businesses must deliberately evaluate their financial options as the\ninterest component shall keep on compounding.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Credit_Scheme_Benefits_for_Subordinated_Debt_for_Promoters\"><\/span>Credit Scheme Benefits for Subordinated Debt for Promoters<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>It seems that the interest moratorium &amp; credit guarantee may not impact the stress MSMEs as per the expectation. The banks are not keen to roll out further credit to the distress MSMEs. <em>That is why Credit Guarantee for the Promoters\u2019 Subordinated debt comes in handy.<\/em>&nbsp;<\/li><li>If promoters can plead commercial banks to avail of personal loans where the government can act as a guarantor. This will aid consolidates crucial capital to the company.&nbsp;<\/li><li>The Liquidity further can use to address the back credit and obtain working capital for arranging logistics and meet existing orders.&nbsp;<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The new debt facilities for MSME renders financial aid without imposing any stringent obligations and the banks are acting as guarantor to avert repayment related issues.&nbsp;MSMEs are the backbone of the Indian economy and they need adequate financial backing from the government to safeguard their existence. The well established and bigger organization have ample fund to encounter tough times. But that\u2019s not the case with MSMEs. They tend to eclipse very quickly under tremendous economic pressure.&nbsp;<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/benefits-of-an-msme-ssi-registration-in-india\/\">What are the Key Benefits of an MSME\/SSI Registration?<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>COVID 19 is nothing short of a catastrophe for the global economy. Nearly every organization across the globe has affected by this pandemic and MSMEs are not different here.&nbsp; The Indian government had taken some proactive steps in this direction to help the small and medium-class enterprises in terms of financial backing by announcing New [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":18987,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[176],"tags":[1181],"acf":{"service_id":"71"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3090,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18985"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=18985"}],"version-history":[{"count":8,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18985\/revisions"}],"predecessor-version":[{"id":19017,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18985\/revisions\/19017"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/18987"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=18985"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=18985"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=18985"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}