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SIDBI is planning to support MSMEs (micro, small and medium enterprises) by extending credit facilities which will allow enterprises the flexibility to plan capital expenditure for immovable and other fixed assets. It will also provide them capital through subordinated debt for sustaining growth momentum
The Flexible Assistance for Capital Expenditure (FACE) scheme is for MSMEs which incur capital expenditure (capex) for modernisation, technological up-gradation, diversification or for meeting global standards.
FACE will offer the flexibility to plan capex for immovable and other fixed assets jointly or separately.
Basis of tenure
The tenure of each component is linked with its economic life and cash flow and could be in the range of 3-7 years for movable fixed assets and as long as 10 years for land and building, said Mr Sushil Muhnot, Chairman and Managing Director, SIDBI.
MSMEs need significant investment in land and building which constitutes a substantial part of their capex as compared to investment in plant and machinery.
A single loan repayment schedule of 5-7 years puts pressure on liquidity of the unit as repayment is not matched to cash flow from each component of an investment and MSMEs, at times, are forced to liquidate long term loans with short term funds, SIDBI said in a statement.
The Growth Capital and Equity assistance will help deserving MSMEs in getting adequate capital via subordinated debt for sustaining the growth momentum, as many of them often fail to get adequate working capital due to non-availability of adequate owners' capital and all assets are to be offered as security, said Mr N. K. Maini, Deputy Managing Director, SIDBI.
Subordinated debt is a popular quasi equity instrument globally, with minimal complexities and simpler documentation and, hence, quick to deliver.
It is provided on the strength of cash flows rather than asset coverage or security.
The initial longer moratorium (3-5 years) on principal instalments ensures greater chances of success of the ventures.
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