Q&A library

My friend and I would like to start a new business in essential oils and manufacturing of soaps, fragrance candles and different blend oils for aromatherapy. Are there any loans under the government scheme and what is the upper cap limit of the loan?
Questioned by Vilas, Maharashtra
The government and many other financial institutions are providing assistances for new businesses. There are many schemes and options available under MSME as Collateral-free loan, Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE), MUDRA Loans, Stand-Up India etc. The eligibility criteria of the loans differ from the nature of the loan, nature business, turnover etc. At the initial stage of a business, it is advisable to keep loans and other liabilities minimum. Also, in order to get a business loan from any lender, it is important to prepare a good business plan.  The cap limit depends on the nature of the loan, the institution providing the loan, the nature of the business and business plan etc. kindly visit a nearest financial institution with your business plan for further details.

I had been working in travel industry for long time but I lost my job. Now I started my own firm, catering, buying and selling of live stock and distribution of daily home use products. How can I get financial aid and marketing support?
Questioned by francy joseph, Kerala
The government has introduced schemes for start-ups to provide financial support. The MSME schemes as Collateral-free loan, Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE), MUDRA Loans, Stand-Up India, Emergency Credit Line Guarantee Scheme (ECLGS) etc. can be considered as an option. The SIDBI Make in India Soft Loan Fund for Micro Small and Medium Enterprises (SMILE) is also another possibility for receiving financial support. Muthoot Fincorp Ltd. has launched a special Gold Loan Scheme for businesses known as "Restart India - Interest Free Gold Loan". Also, there are many other schemes provided by other financial institutions as well.For marketing your product, you can use WhatsApp, Instagram, distribute pamphlets etc. as the tool. You can also create a WhatsApp/broadcast group and add your frequent customers and share the features of your products, pictures and new offers on the group. This can help you to increase the business and can also help to keep contact with your frequent customers. Also, make sure that you follow all the Covid -19 safety protocols to make customers feel secure to buy your products. Using online payment options like Google pay, Patym, PhonePe etc. can help make the payment easier and seamless.

Can I get a loan if my CIBIL score is low?
Questioned by Sajid Ali, Maharashtra
A credit score is chiefly grounded on how easily you have paid back your previous loans, whether you have defaulted or pre-closed any loan, what types of loans you have studied and how much of your income goes in repaying loans. Hence, instantly if you induce a low mark and still need a personal loan, you can find some lenders who will be willing to pay you the money, but they normally turn on a high rate of interest. Some lenders even charge up to 30-40% p.a., which is very high. It advisable to go for a gold loan if you have some collateral with you, you may visit the nearest Muthoot Fincorp branch for a gold loan.

How can I get funds for my plan to set up a grocery/ hardware store?
Questioned by Sidamoni khadka, Assam
There are 2 common ways to acquire funds. (i)Getting investments (ii) Getting loans. Investors seek payback from the profits made from the business. Ownership of the business needs to be shared with the investor. On the other hand, loans need to be repaid with interest, regardless of how well the business performs. However, you will retain complete ownership of the business if you go with a loan. For a Groceries / Hardware store, loan/borrowings would be a recommended option. There are various loans launched by banks and micro-financiers in the market. Due to the ongoing slump in the economy, banks offer loans at attractive rates, especially for small ventures. In case of a groceries/ hardware store, you would require funds to set up the store and also for your daily operations that include- salary to staff, shop maintenance, purchase of inventory etc. (these are collectively known as working capital requirements). For your need, you may apply for a term loan. Depending on bank regulations, you may have to provide the banks with collateral security (There are schemes which do not require collateral security).You could also explore 'Overdraft facilities' that your bank is willing to offer.

We have the order in hand to supply raw materials to aluminium foundry. We are importing the material. Our supplier is ready to supply materials with advance and LC term. How to get invoices discounted to fulfill LC
Questioned by Mandar Jadhav, Maharashtra
The Letter of Credit Discounting (LC Discounting) is a method of financing. It is also known as a documentary credit. In order to perform discounting of Letter of Credit, it is the exporter who has to produce the invoices and letter of credit obtained from the buyer to the exporter’s own bank. From your query, it appears that you are importing material. However, it is not clear whether you are making an export to the aluminum foundry. Based on the facts provided, it appears that your supplier requires a Letter of Credit from you for him to discount the invoice. In order to provide a Letter of Credit to your supplier who you are importing from, you need to perform the following steps: 1. Sign a contract with your supplier stating that payment will be made against a Letter of Credit 2. Approach your bank to issue a Letter of Credit in favour of your supplier (Please note that some banks offer Letter of Credit even without having an existing banking relationship, but you may have to deposit some funds) 3. Once supplier receives Letter of Credit, they will deliver the documents to their bank and get payment. 4. You will need to pay your bank based on the credit terms, who will close the payment with the supplier’s bank Generally, the following documents are required:  Letter of Request  Form A1  Exchange Control Declarations  Appraisal Note  Fixed Deposit (generally required where you don’t have an existing bank account with that bank)  Fees for opening Letter of Credit

Which banks or financial institutions provide low interest loans?
Questioned by Himanga Rag Borthakur, Assam
Loans are helpful, particularly to fulfil your dream(s). There are different types of loans available with less interest. You can select a loan scheme based on your requirement. A number of government start-up loans, small business loans and schemes have been introduced recently in the light of COVID-19 pandemic. Collateral-free automatic loans & other relief schemes during COVID-19 Lockdown, Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE), MUDRA Loans, Stand-Up India, etc. are a few currently provided through various financial institutions. Government loans for start-ups and small business are having less interest rates. Small industrial Development Bank of India (SIDBI) has started lending to companies directly instead of through banks and offers long-term loans. You can visit your nearest public-sector bank / NBFC for opting suitable loan and scheme.

My new company which was financed by the PMEGP Govt scheme was started four months before the lockdown started . Now that restaurants and bars are closed, how do I regain my customers?
Questioned by Ravi Alat, Maharashtra
From your question, it is unclear what exactly your business is. We understand that your customers are from the Food and Beverage sector. If the immediate challenge you're facing is to do with the PMEGP loan payback, contact the officer who helped you in availing the loan to explain your situation. Since it is a government aided program, try to avail applicable moratorium benefits. It would be a good idea to submit your concerns in writing. While doing so, please also mention how you intend to adopt your business to the new circumstances. Be sure to research simple techniques to digitize your business, and highlight the same when communicating to your loan officer. Since restaurants are now opening up, it would be a good idea to execute the new ideas of your business now.

Considering the current pandemic situation, is it possible to get any deduction on the interest rate of the educational loans as the course duration might get extended?
Questioned by Mini Suresh, Kerala
If you have taken an education loan and are anxious about the impact of the COVID-19 pandemic, few circumstances has to be considered. There will not be any specific fall in the percentage of interest / amount of education loan availed other than the moratorium announced. RBI has provided a six-month moratorium on all term loans. Education loans are extended as term loans, and the moratorium applies to all repayments falling between March 1, 2020, and August 31, 2020. If you are facing a financial crunch, you could consider taking advantage of this. However, you should keep in mind that the moratorium is not a waiver. Your bank will continue levying interest on the outstanding amount for the deferred period. You will have to pay the accrued interest when your EMI resumes, and in effect, the cost of your education loan will increase. In case of current students, your education loan is sanctioned and disbursements are based upon the yearly / periodic needs like tuition fees payable to your institute, hostel charges, purchase of study materials, etc. as per the term of loan approval and sanction. The disbursements happens in the specific period / term subject to your satisfactory performance in the examinations for the course for which loan is granted. Education loans have different terms and conditions. Banks provide a moratorium during the course period. In some cases, students don’t need to pay any money until 6 to 12 months after the completion of the course. Some banks charge simple interest during the course period and some may require the student to start paying the normal loan interest, which is higher. You can use an online education loan calculator and plan your repayment schedule.

Does opting Moratorium affect my credit Score? Is this a right time to go for a loans and other investments?
The RBI circular in May has stated that the bank cannot declare anybody as a defaulter if they fail to pay the EMIs between March and May. The credit score for the period for which you avail the moratorium, will not be impacted. The Finance Ministry had already proposed some effective measures to boost the economy in April. With RBI announcing the reduction in repo rates, banks have also decided to launch repo rates or external benchmarking linked to the loan products. This has resulted in reduced EMI for housing loans, vehicle and other retail loans, which will benefit the customers.If you are planning for investments in stock market, it’s important to understand the markets very well. The best response to volatility is not to sell off investments, but to rebalance the portfolio to protect long-term goals and to accumulate good stocks at a sizeable discount. As investing is not about market levels, a realistic investor balances the impact of volatility through efficient asset allocation with the right mix of assets, i.e. equity and debt, helps to improve overall returns in the long term. Investors looking for fixed income avenues, can consider investing in National Savings Certificates (NSC), Kisan Vikas Patra, Post Office Term deposits etc. At present, these schemes are earning more than FD rates offered by some of the big banks.Source: Times of India article dated 23 April 2019

How much is it going to effect the bottom-line growth of the financial institutions with the moratorium and the rise in NPAs? How can we maintain the customer satisfaction during this pandemic situation?
Questioned by HILDA ANISH, Kerala
RBI has taken baseline case of -4.4% contraction (GDP growth) in economy. Banking industry NPA is expected to reach 14.7%. Public sector banks would be worse off as compared to private sector banks or foreign banks. Nearly half of all bank loans are under moratorium. Bank NPAs could rise to highest in 20 years. In terms of individual NBFCs, the report said 11.2% of companies will not be able to comply with the regulatory minimum Capital Adequacy Ratio (CRAR) of 15% under the baseline scenario. COVID-19 pandemic may intensify systemic risks for NBFCs. Once India enters the post-pandemic phase, the focus would be calibrated unwinding of regulatory and other dispensations, provided to financial institutions (Source – RBI Financial Stability Report dated July 2020).Certain experts think that the moratorium may continue, while the remaining don't rely on postponing the liability to a future date (Must wait for RBI regulatory announcements / Press release in this regard). This would be the best time for the industry (Banks, NBFCs, Fintechs, etc.) to study and understand how customers act and what kind of things are leading to customer satisfaction. Expanding short-term credit which may include digitally-originated, digitally-underwritten, digitally-disbursed and digitally-collected loans may lead to customer satisfaction. Businesses will have to redefine the way they were doing business till date, in a number of ways. Instead of having rigid loan terms, businesses might switch to a ‘pay-as-you-can’ model. Organisations can undergo a culture level change being more agile, more risk-taking and more open to new ideas and experimentation. Every product, every process, everything that a company does has to be re-thought and re-developed from scratch to be delivered digitally which could result in customer engagement and satisfaction.

#RestartIndia Response Network
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