Kerala Financial Corporation (KFC), a leading State-level financial institution, has launched a special loan product to the Micro, Small and Medium Enterprise (MSME) sector, aiming to assist them execute work orders and also discount pending bills.
Under the scheme, 75 per cent of the cost of work received from government departments/agencies/PSUs will be provided as a loan, a spokesman for the corporation said.
Duration of work
Repayment will depend on the duration of work and expected receipt of funds from the work-awarding authority. The rate of interest will be linked to the credit rating score of the MSME, starting at eight per cent.
Considering the Covid-19 situation, the credit rating of the MSME will be based on analysis of the balance sheet during the pre-Covid period, the spokesman said.
Once the work awarding authority accepts the bill, MSMEs can immediately get up to 90 per cent of the bill amount through discounting. For final bills, the discounting can be done without security also.
MSMEs play an important role in the economic growth of the country. But they continue to face constraints in obtaining adequate finance, particularly in terms of sourcing funds required to execute work orders or convert bill receivables into liquid funds. The new scheme from Corporation will be appropriate to address such issues during this pandemic period, the spokesman said.
The applicant should be MSME Udyam registered to become eligible for the scheme. GST registration and the latest audited balance sheet are also mandatory. However, GST registration will not apply to MSMEs exempt from registration.
An audited balance sheet may not be insisted with respect to MSMEs with annual turnover of up to ₹2 crore, paying income tax on a presumptive basis.
The loan will be sanctioned as a Line of Credit (LoC) for a five-year period during when MSMEs can avail facilities such as guarantees, work execution loans, bill discounting, government promissory note discounting and equipment finance.
Maximum assistance will be ₹20 crore for companies/registered cooperative societies and ₹8 crore for others. However, the limit for guarantees and discounting of government promissory notes will be up to ₹50 crore for all entities.
The validity of the LoC is for five years. Once the customers execute the loan agreement, they can avail all facilities throughout the five-year period with minimum formalities. The scheme will be reviewed on the basis of feedback from the MSMEs.
Kerala Financial Corporation targets to disburse at least ₹500 crore under this scheme during the current financial year itself, the spokesman added.