SMEs benefit from collateral-free loans
Sri Lanka’s small and medium enterprise (SME) entrepreneurs numbering around 77000 have been given a lifeline by providing access to loan facilities under a new scheme initiated under the 2025 budget, the Finance Ministry disclosed.
It has met the biggest challenge for small business owners – providing loans without pledging property or other assets as loan security and this facility was based on the business’s potential rather than on collateral.
Director General of the Department of Development Finance of the Ministry of Finance, Manjula Hettiarachchi revealed that out of the Rs. 200 billion allocated in this year’s budget to provide financial assistance to SME entrepreneurs, loans amounting to Rs. 120 billion have already been approved.
He added that the remaining Rs. 80 billion will be swiftly channelled through the banking system to make the funds available to beneficiaries without delay.
He further stated that one of the major challenges faced by SMEs and other entrepreneurs is the lack of sufficient capital to start or expand a business under affordable interest rates.
Another key issue, he noted, is the absence of adequate collateral to secure such loans. To address both challenges, the government, through the Department of Development Finance, has introduced special loan schemes in collaboration with 13 state and private banks and has also established a National Credit Guarantee Institution (NCGI).
Under this scheme, individuals already operating successful businesses can obtain working capital loans of up to Rs. 25 million at an interest rate of 7 per cent, with a 12-month grace period for interest payments. The loan repayment period has been structured over 10 years.
Loans under this scheme range from Rs. 500,000 to Rs. 25 million and are available across all sectors. To qualify, SME owners must show their business is viable when applying through banks.
Additionally, those currently classified as Non-Performing Loans (NPLs) and unable to meet existing loan repayments can access up to Rs. 15 million at an 8 per cent annual interest rate. Borrowers are exempt from paying interest for the first six months, and repayment can be made over five years.
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