How Does the PMAY Interest Subsidy Scheme for EWS and LIG Work?

The administration has been endeavoring to help the reason for lodging, through its ‘Lodging for All by 2022′ mission. Under this mission, the administration has turned out with two plans, to mostly support the enthusiasm of the borrowers in urban zones. The main plan, which is extremely liberal regarding the loan fee appropriation, is pertinent to the Economically Weaker Sections (EWS) and those under the Low-Income Group (LIG). The other plan covers the Middle-Income Group (MIG). Give us a chance to talk about the principal conspire in detail.Qualification criteria, for benefiting of the endowment on enthusiasm on home advances The qualified class is isolated into two sections – the primary classification is EWS and the other classification is LIG. This plan is accessible for gaining or developing private units in the 4,041 statutory towns according to the 2011 enumeration and 274 extra towns, which have independently been told by the state government.Keeping in mind the end goal to meet all requirements for the endowment, the individual or mate ought not claim an all-climate pucca house, either in his/her name or for the sake of any unmarried offspring of the couple, in any piece of India. Notwithstanding securing or development of another house, a borrower can likewise profit of this office for expansion of his current house, regardless of whether self-gained or acquired. On the off chance that the borrower needs to profit of the advantages, for expansion or improvement of his current house for expansion of rooms, kitchen, latrine, and so on., at that point, the state of pre-presence of a pucca house, might not make a difference.Also, the salary with the end goal of qualifying under the plan, is the pay of the entire family as a unit and not of the leader of the family as it were. For profiting of the endowment, the borrower needs to present a self-revelation, about the wage and title of the property to be procured, to the loan specialist. As the administration does not guarantee any piece of the advance given under this plan, banks should take after their own due tirelessness process, for money and title of the property. The loan specialist needs to screen the development of the residence units financed under the plan, similar to endorsements for the building outline, framework offices, the nature of development, and so on. The bank additionally needs to check the consumption caused up to various phases of development, through site visits, and so on.

In this way, the administration will just give the sponsorship to such advances however the moneylender needs to take the various safety measures, which it takes for some other general home credit, as any non-installment or the advance turning into a non-performing resource, will be on the bank’s books.The house which meets all requirements for the intrigue endowment, can either be a solitary unit or a unit under any multistoreyed constructing. The qualified unit needs essential offices and foundation like can, water, sewerage, street, power, and so on. The zone of the house, will just incorporate the territory on which a cover can be laid, implying that it would exclude the dividers in the house or the external mass of the house.The house to be built or procured under this plan, ought to be for the sake of the female leader of the family unit or on the other hand, in the joint name of the male leader of the family and his significant other. In any case, if there is no grown-up female part in the family, the house can be procured for the sake of the male individual from the family.The wage qualification and rate of intrigue appropriation accessible and the correct quantum of advantages, is organized as under:Particulars EWS LIGAnnual family income Upto Rs 3 lakhs Above Rs 3 lakhs and upto Rs 6L
House area Carpet area upto 30 sq metres Carpet area upto 60 sq metres
Rate of interest subsidy 6.50% 6.50%
Maximum loan eligible for subsidy Rs 6 lakhs Rs 6 lakhs
Maximum loan tenure 20 years 20 yearsThe maximum subsidy under this scheme can be Rs 2,67,280. The amount of subsidy will be reduced proportionately, if the loan amount is lower than Rs 6 lakhs. The subsidy benefit is only available for loans that are disbursed on or after June 17, 2015.The most extreme appropriation under this plan can be Rs 2,67,280. The measure of sponsorship will be lessened proportionately, if the advance sum is lower than Rs 6 lakhs. The appropriation advantage is accessible for credits that are dispensed on or after June 17, 2015.How the appropriation is given The appropriation under this plan is given as forthright help, as a lessening in the general credit risk.The present estimation of the intrigue endowment is figured at 6.50%, for a greatest residency time of 20 years, on the most extreme advance measure of Rs 6 lakhs. The future outpouring of enthusiasm at 6.50% is marked down at 9% and the present esteem so arrived, is lessened from the genuine credit sum taken by the borrower.The measure of unique credit lessened by the net present estimation of the sponsorship advantage, is the obligation of the borrower and the EMI is figured likewise, in light of the concurred rate of intrigue.On the off chance that the borrower gets more than Rs 6 lakhs, the measure of endowment should be limited to a measure of Rs 6 lakhs and the extra advance might be charged customary loan costs of the bank. Despite the fact that the bank needs to give the acknowledgment for the endowment to the borrower quickly, the loan specialist gets the measure of premium appropriation, simply after the claim made by it is prepared by the nodal office with which it is enlisted. This is the primary motivation behind why loan specialists are not quick to advance this gainful plan of the administration.

Under the plan, the loan specialists need to enlist themselves with one of the nodal organizations – NHB or HUDCO. The loan specialist organizations incorporate different elements occupied with the matter of giving home fund, for example, planned banks, lodging account organizations, provincial country banks (RRBs), state agreeable banks and urban helpful banks. It will likewise incorporate little fund banks and NBFC-miniaturized scale back foundations. Moreover, the legislature can advise different organizations, to be qualified to give back under this plan.Preparing charge for credit applications Under the plan, the moneylender isn’t permitted to recuperate any handling expense from the borrower. In this way, notwithstanding repayment of the appropriation sum, the moneylender will likewise be given a singular amount of Rs 3,000, to take care of their expense of handling the advance application for a sum upto Rs 6 lakhs. For extra credit past Rs 6 lakhs, the moneylenders are permitted to recoup ordinary handling expenses.Parity exchangeIn spite of the fact that the borrower is permitted to move his current home credit, under which the sponsorship advantage has just been benefited, the borrower might not be qualified for guarantee the endowment again on such adjust exchange. Besides, you can’t profit the advantage under this plan, by exchanging your current home advance after the informed date, as the appropriation is just accessible to the borrower when he initially procures or builds the house. The house to be acquired, require not be new. It can likewise be a resale house from another proprietor or a developer.

Alternative Financing Vs. Venture Capital: Which Option Is Best for Boosting Working Capital?

There are several potential financing options available to cash-strapped businesses that need a healthy dose of working capital. A bank loan or line of credit is often the first option that owners think of – and for businesses that qualify, this may be the best option.

In today’s uncertain business, economic and regulatory environment, qualifying for a bank loan can be difficult – especially for start-up companies and those that have experienced any type of financial difficulty. Sometimes, owners of businesses that don’t qualify for a bank loan decide that seeking venture capital or bringing on equity investors are other viable options.

But are they really? While there are some potential benefits to bringing venture capital and so-called “angel” investors into your business, there are drawbacks as well. Unfortunately, owners sometimes don’t think about these drawbacks until the ink has dried on a contract with a venture capitalist or angel investor – and it’s too late to back out of the deal.

Different Types of Financing

One problem with bringing in equity investors to help provide a working capital boost is that working capital and equity are really two different types of financing.

Working capital – or the money that is used to pay business expenses incurred during the time lag until cash from sales (or accounts receivable) is collected – is short-term in nature, so it should be financed via a short-term financing tool. Equity, however, should generally be used to finance rapid growth, business expansion, acquisitions or the purchase of long-term assets, which are defined as assets that are repaid over more than one 12-month business cycle.

But the biggest drawback to bringing equity investors into your business is a potential loss of control. When you sell equity (or shares) in your business to venture capitalists or angels, you are giving up a percentage of ownership in your business, and you may be doing so at an inopportune time. With this dilution of ownership most often comes a loss of control over some or all of the most important business decisions that must be made.

Sometimes, owners are enticed to sell equity by the fact that there is little (if any) out-of-pocket expense. Unlike debt financing, you don’t usually pay interest with equity financing. The equity investor gains its return via the ownership stake gained in your business. But the long-term “cost” of selling equity is always much higher than the short-term cost of debt, in terms of both actual cash cost as well as soft costs like the loss of control and stewardship of your company and the potential future value of the ownership shares that are sold.

Alternative Financing Solutions

But what if your business needs working capital and you don’t qualify for a bank loan or line of credit? Alternative financing solutions are often appropriate for injecting working capital into businesses in this situation. Three of the most common types of alternative financing used by such businesses are:

1. Full-Service Factoring - Businesses sell outstanding accounts receivable on an ongoing basis to a commercial finance (or factoring) company at a discount. The factoring company then manages the receivable until it is paid. Factoring is a well-established and accepted method of temporary alternative finance that is especially well-suited for rapidly growing companies and those with customer concentrations.

2. Accounts Receivable (A/R) Financing - A/R financing is an ideal solution for companies that are not yet bankable but have a stable financial condition and a more diverse customer base. Here, the business provides details on all accounts receivable and pledges those assets as collateral. The proceeds of those receivables are sent to a lockbox while the finance company calculates a borrowing base to determine the amount the company can borrow. When the borrower needs money, it makes an advance request and the finance company advances money using a percentage of the accounts receivable.

3. Asset-Based Lending (ABL) - This is a credit facility secured by all of a company’s assets, which may include A/R, equipment and inventory. Unlike with factoring, the business continues to manage and collect its own receivables and submits collateral reports on an ongoing basis to the finance company, which will review and periodically audit the reports.

In addition to providing working capital and enabling owners to maintain business control, alternative financing may provide other benefits as well:

  • It’s easy to determine the exact cost of financing and obtain an increase.
  • Professional collateral management can be included depending on the facility type and the lender.
  • Real-time, online interactive reporting is often available.
  • It may provide the business with access to more capital.
  • It’s flexible – financing ebbs and flows with the business’ needs.

It’s important to note that there are some circumstances in which equity is a viable and attractive financing solution. This is especially true in cases of business expansion and acquisition and new product launches – these are capital needs that are not generally well suited to debt financing. However, equity is not usually the appropriate financing solution to solve a working capital problem or help plug a cash-flow gap.

A Precious Commodity

Remember that business equity is a precious commodity that should only be considered under the right circumstances and at the right time. When equity financing is sought, ideally this should be done at a time when the company has good growth prospects and a significant cash need for this growth. Ideally, majority ownership (and thus, absolute control) should remain with the company founder(s).

Alternative financing solutions like factoring, A/R financing and ABL can provide the working capital boost many cash-strapped businesses that don’t qualify for bank financing need – without diluting ownership and possibly giving up business control at an inopportune time for the owner. If and when these companies become bankable later, it’s often an easy transition to a traditional bank line of credit. Your banker may be able to refer you to a commercial finance company that can offer the right type of alternative financing solution for your particular situation.

Taking the time to understand all the different financing options available to your business, and the pros and cons of each, is the best way to make sure you choose the best option for your business. The use of alternative financing can help your company grow without diluting your ownership. After all, it’s your business – shouldn’t you keep as much of it as possible?