The objective of NEF Scheme is to provide equity type support to entrepreneur for setting up new projects in tiny/small scale sector, for undertaking expansion, modernization, technology upgradation and diversification by existing tiny, SSI and service enterprises and for rehabilitation of viable sick units in the Ssi sector which fulfill the specified eligibility criteria, irrespective of location. Assistance from NEF helps the small scale units in strengthening their equity base and thereby improving their acceptability for term financing by primary lending institutions (PLIs)

Eligible Institutions

State Financial Corporations, Twin-function Industrial Development Corporations, scheduled commercial banks and select urban and state co-operative banks.

Eligibility Criteria

[a] New projects in tiny and small scale sectors for manufacture, preservation or processing of goods.

[b] Existing tiny and small scale industrial units, including those which have availed of NEF assistance earlier, undertaking expansion/ modernization/ technology upgradation/ diversification, etc.

[c] All new and existing service enterprises, including those which have availed of NEF assistance earlier [except Road Transport Operators]. However, in case of service enterprises, the assistance under NEF would be made available only for acquisition of fixed assets.

[d] Sick units in the tiny and small scale sectors including services enterprises which are considered potentially viable. The rehabilitation proposal should conform to the norms prescribed under SIDBI’s Refinance Scheme for Rehabilitate

[e] Projects which avail of any margin money or seed/special capital assisgtance under the schemes of Central or State Government, State Financial Corporations and other State-level institutions or banks [except Central/State Investment Subsidy which may be retained for meeting working capital requirements] will not be eligible for assistance.

[f] Availment of refinance in respect of term loan for the project by SIDBI is a pre-requisite for extending equity type assistance under the Scheme.

Project Cost

Project cost [including margin money for working capital] should not exceed Rs. 25 lakh in the case of new projects. In the case of existing units and service enterprises, the total outlay, including the proposed outlay on expansion/ modernization/ technology upgradation / diversification or rehabilitation should not exceed Rs. 25 lakh.

Promoter’s Contribution

Minimum 10% of project cost.

Debt Equity Ratio

65:35 or 1.857:1 [excluding State Investment Subsidy]. However, a flexible approach may be followed in the case of rehabilitation proposals.

Nature of Assistance

Equity type assistance in the form of soft loan.

Amount of Assistance

Amount as may be required to meet the gap in equity as per prescribed debt equity norm, after taking in to account promoter’s contribution, subject to a maximum of 25% of project cost or Rs. 6.25 lakh per project, whichever is lower,

Terms of Assistance

(i) Interest

No interest is charged on the soft loan component except service charge of 5% p.a. to be retained by the eligible PLIs.

(ii) Repayment period

7 years (including moratorium upto 3 years) for the soft loan; the repayment period thereof should, however, be coterminus with the repayment period of normal term loan for the project. Whenever borrowers are making repayments / prepayments of term loan alone, the PLIs may insist on repayment of soft loan and wherever soft loan repayments are not received, the repayments / prepayments so received may be proportionately adjusted by the PLIs towards term loan and soft loan; payments to SIDBI may correspondingly be made.

(iii) Security

No security [including collaterals] is to be listed upon for the soft loan

Others

(i) The total fund requirement of project in the form of equity assistance under NEF, term loan and working capital is to be provided by a single agency.

(ii) The projects covered under the Single Window Scheme (SWS) can also be extended assistance under NEF Scheme if it satisfies the eligibility criteria under both the schemes. NEF assistance in such cases would be restricted to 25% of the cost of the fixed assets (project cost less margin money for working capital).

(iii) Credit risk in respect of assistance out of NEF is shared equally by Gol and SIDBI.

(iv) In the cases of loan proposals where the eligible PLIs are satisfied of the eligibility and need to provide NEF support, they may make necessary provision in this regard even by redrawing the financing pattern so as to provide the required component of equity support out of NEF to all deserving small scale units.

(v) Like any other interest/ charge, service charge has to be recovered from the borrowers by the eligible PLIs and retained by them. PLIs are not to dispense with recovery proceedings on account of absence of charge on assets etc. and take similar steps for recovery of NEF as in the case of recovery of term loans. The legal expenses incurred for recovery of arrears of NEF assistance will be fully borne by SIDBI. All other terms and conditions applicable to term loan in this regard are applicable mutates mutandis to NEF assistance.

(vi) In the event of default in the repayment of instalments of the soft loan of service charge, or any postponement thereof allowed by SIDBI/ Bank / Corporation, such instalment(s) and arrears of service charges, unless otherwise agreed to by SIDBI, shall carry interest at a rate which shall not exceed the rate of interest applicable to normal loans lent and advanced by SISBI at the time of such default or postponement (present rate being 16.5% p.a.).

Procedure for Availing of the Assistance

No separate application is to be submitted ofor seeking assistance under the NEF Scheme. Entrepreneurs while applying for term loan assistance from the above said eligible institutions can indicate the amount of NEF assistance in their financing plan.