Every MSME has endless expenses to cover. From establishing a business to striving for its expansion, ensuring the fulfilment of its day-to-day expenses, and so much more. Amidst countless expenses in the pipeline, the working capital can fall into deficit, making it difficult to meet the operating expenses. That’s where the need to take credit springs up. It helps you meet the financial requirement while contributing to the enterprise’s smooth functioning. Today, we have brought you an effective credit scheme that’ll work wonders for you. So, if you are in dire need of capital for your small business, then the LUCC plan is just the right choice for you. Wondering what exactly is LUCC all about? Let’s dive deep into the whats and hows of LUCC right away.
What is LUCC?
The Laghu Udhyami Credit Card (LUCC) is a scheme under the Government of India wherein you can get loans that can be used as working capital for your business. The loan is sanctioned for three years at a base lending rate plus 1%. You can easily get the credit from any bank if you are eligible and fit perfectly under the scheme’s terms and conditions.
Here’s a checklist of an ideal borrower under the LUCC scheme:
- You own an MSME which is an existing borrower of the bank. So, the bank is sure you are legit enough to be registered under LUCC.
- You have a fair record of transactions in the previous three years with the bank you seek to get LUCC.
- You have dealings or transactional records proving your creditworthiness. You do not necessarily need a loan account with the lending bank to get credit under the LUCC plan.
- Your working capital loan requirement under the LUCC plan should be less than or equal to 10 Lakhs.
3 Essential Documents Required to Register Under the LUCC Plan
If you have ticked off all the points of an ideal borrower and are ready to register your business under the LUCC plan, you need some documents backing you up. Those 3 essential documents are:
- Identity proof (one of these)- Passport, Voter Id, Driving License, Pan card
- Address proof (one of these)- Passport, Voter Id, Latest electricity bills under your name
- Income proof (one of these)- Form 16, Salary slip, Income Tax Return
On What Basis Is the Credit Card Limit Decided?
Knowing that you are eligible to get the much-needed financial backing and having all the documents to process the loan is great. But having the knowledge of an exact loan figure that you can get is equally important. Well, there are some factors based on which your Laghu Udhyami Credit Card limit is fixed. To be aware of them, read along:
- Suppose you have a small business or are a retail trader. In that case, you’ll receive a credit limit of either of the two: 20% of the annual turnover mentioned in income tax documents or 20% of the turnover of the past 12 months that the bank has recorded in the form of accounts.
- If you haven’t filed GST returns due to non-applicability, the bank will consider your business’s turnover that your operative account shows in the two previous years.
- If you are a working professional or a self-employed person, the bank will take into account 50% of the gross annual income. The gross yearly income considered while calculating your credit limit is the one that is given while filing the income tax return.
- If you own a tiny industry or a small-scale industrial unit, the Nayak Committee decides your loan amount. That is 20% of the estimated annual turnover but will always be less than Rs 10 lakh.
How to Enroll in LUCC?
If you meet the eligibility criteria to get financial support for your small business under this scheme, then go ahead and follow these three steps to get the loan:
Make sure you are an ideal borrower under the LUCC plan and possess all four characteristics of the same.
Arrange the essential documents and submit them to the nearest bank branch that offers hassle-free credit to SMEs under the LUCC scheme. The documents required may differ from bank to bank. Also, depending on your employment type and income source, a bank might ask for additional proof you need to provide.
Now you need to pay the application charges, and you are done on your end. After that, the bank will go through your profile, and if everything looks good, you’ll be granted the loan.
Is Collateral Security Needed To Acquire a Loan Under the LUCC Plan?
Usually, you need to provide security against a typical loan borrowed by a bank, regardless of the loan type or the borrower’s creditworthiness. However, under LUCC, a collateral security requirement is based on the following scenarios:
- If you are a customer with a genuinely fair track record with the lending bank, you do not need collateral security.
- If you have an ongoing loan contract with the bank, the securities already provided by you will be retained by the bank.
- When the previous securities are not enough, you might need to keep receivables, machinery, or office equipment as collateral security with the bank. Hypothecation of stock in trade also works as a security for loans under the LUCC plan.
- There’s no need for additional security against the money lent if you insure your loan amount with the Credit Guarantee Funds Trust for MSME.
FAQs on LUCC Plan
Here are some Frequently Asked Questions on the LUCC Plan:
1. Is LUCC a government?
Yes, the LUCC scheme comes under the parasol of the Government of India.
2. Is credit society safe in India?
Yes, absolutely. You can trust a credit society managed by the Deposit Insurance and Credit Guarantee (DICG). Why? Because DICG is monitored by and is a subsidiary of the Reserve Bank of India.
3. What year was the LUCC scheme introduced?
The Laghu Udhyami Credit Card scheme was launched in the year 2001-2002.
4. How many primary credit societies are there in India?
There are near about 95,000+ primary credit societies in India.
We have finally reached the end of this guide on the LUCC scheme. We suppose now you are well equipped with the knowledge to get financial help as a small business. So, think no further and go for this credit scheme if you feel this is the need of the hour for your business.