Working Capital Term Loan Scheme

Working capital is a crucial element for every business, without which their operations may be jeopardized. A working capital term loan offers long-term credit facilities to entrepreneurs, helping them manage challenges like irregular cash flows, lack of cash reserves, and more. This article aims to raise awareness of the Tamil Nadu Working Capital Term Loan Scheme, and how it supports eligible beneficiaries.

Objective of the Scheme

The Tamil Nadu Government initiated the Working Capital Term Loan Scheme to ensure sufficient funding for units involved in manufacturing and processing industrial activities, thus enabling them to meet their existing and additional working capital needs. Understanding the role of MSME in local economies can provide further insights into similar initiatives across India.

Applicability

The Tamil Nadu Industrial Investment Corporation (TIIC), an entity of the Tamil Nadu Government, has made this scheme accessible to both assisted and non-assisted units. Such units should have been operational and profitable for the previous two financial years. It is crucial for these units to be classified within the standard asset's category of TIIC/Banks for the mentioned period. Additionally, they must showcase a positive net worth trajectory.

Quantum of Loans

Eligible units can avail loans up to Rs. 150 lakhs initially, with additional working capital considered after one year. Promoters must contribute at least 25% towards the working capital assessment. Learning about the registration requirements for partnerships may benefit businesses looking to maximize credit opportunities.

For businesses affected by the pandemic, exploring the Timely Working Capital Assistance Scheme could provide additional support during challenging times.

Debt Equity Ratio

Debt equity ratio indicates the proportionate contributions of creditors, shareholders, or owners towards a business's capital. To participate in this scheme, a unit's Debt Equity Ratio, including the Working Capital Term Loan component, should not exceed 2:1. Companies with a solid financing background are often better positioned in terms of creditworthiness.

Repayment of Loans

The loan repayment period is set at 42 months, which incorporates a six-month moratorium period. Repayments must be made in equal monthly installments. Adhering to compliance rules further ensures a smooth financial operation. Understanding the repayment options under the General Term Loan Scheme could provide additional insights for businesses planning their financial strategy.

Collateral Security

Collateral refers to the borrower's asset pledged as loan security. The collateral terms differ based on unit specifications:

Existing assisted units – Category-standard units for the past two financial years must offer collateral worth 100% of WCTL (remaining value of existing primary and collateral assets).
Units not assisted by TIIC – These units must provide 125% of WCTL as collateral to meet working capital needs.
Units assisted by TIIC – Units with bank working capital limits must offer 150% of WCTL as collateral.

For further security insights, understanding professional tax registration requirements can provide complementary strategic planning approaches.

Application Process

Applicants can obtain the application form from TIIC's Head or Branch Offices. After completing the application, it should be submitted to the TIIC office. Businesses should also be aware of GST compliance requirements for smoother application processes. Additionally, exploring the detailed Working Capital Term Loan Scheme can offer guidance on the application protocol and eligibility criteria.

Registration Fee

Applicants need to pay a fee of Rs. 10,000 or Rs. 50,000 based on the loan endorsement's required committee authority. Understanding Startup India eligibility can help in positioning new ventures for financial backing.

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Frequently Asked Questions

Common questions about Working Capital Term Loan Scheme in Tamil Nadu.

A Working Capital Term Loan Scheme is a scheme aimed at providing long-term working capital credit facilities to entrepreneurs and businesses to help them address issues such as irregular cash flows and non-availability of cash reserves.

The Tamil Nadu Working Capital Term Loan Scheme is applicable to manufacturing and processing industrial units assisted and non-assisted by the Tamil Nadu Industrial Investment Corporation (TIIC). These units should have been operational for the previous two financial years, have earned a cash profit during these years, and be classified as a standard asset by TIIC/Banks for the previous two years.

Under the Tamil Nadu Working Capital Term Loan Scheme, eligible units can avail a loan of up to Rs. 150 lakhs in the initial period. Additional or enhanced working capital can be considered after a period of one year.

Out of the total working capital assessment, the promoter is required to provide at least 25% of the working capital assessment.

The principal repayment period for loans under the Tamil Nadu Working Capital Term Loan Scheme is 42 months, which includes a moratorium period of six months. The repayment must be made in equal monthly installments.

To be eligible for the Tamil Nadu Working Capital Term Loan Scheme, the overall Debt Equity Ratio of a unit should not be more than 2:1 (including the working capital Term Loan Component).

Existing assisted units classed under the standard category for the previous two financial years are required to provide 100% of the Working Capital Term Loan (WCTL) as collateral security in the form of residual value of existing primary land and building, as well as collateral security in the form of land and building.

Units not assisted by TIIC, which lack funds to meet the working capital requirements, must provide a collateral security to the extent of 125% of the Working Capital Term Loan (WCTL).

The applicant can obtain the application form for the Tamil Nadu Working Capital Term Loan Scheme from the Head Office or Branch Office of TIIC.

Applicants are required to remit a fee of Rs. 10,000 for loans that require the endorsement of the Branch Selection Committee (BSC) or Regional Level Sanction Committee (RLSC). If the loans must be considered by the EC or the Board at Head Office, a fee of Rs. 50,000 must be remitted.