The Government of India is listening to the Startups like never before. Good news for startups, now it is possible to take loans of up to Rs 5 crore without collateral through a credit guarantee scheme prepared by the government.
The scheme is awaiting cabinet nod and is likely to be operational soon under the supervision of the Department of Industrial Policy and Promotion (DIPP) headed by secretary of the department Ramesh Abhishek.
The scheme will help us address the most basic challenge of startups which is access to capital. The corpus of the fund will also be guaranteed by the government.
The government is looking at ways to increase availability of finance for startups & to ease the way of doing business. This credit guarantee scheme would help the flow of 'venture debt from the formal banking system'. Through this the government will provide up to 80% risk cover for collateral-free credit given by banks to startups.
The department had invited suggestions from stakeholders including startups, venture capital funds and angel investors on ways to increase availability of credit for startups and this was something the consensus was achieved on.
The Startup Action Plan anno unced by Prime Minister Narendra Modi in January 2016 mentioned that a credit guarantee mechanism through the National Credit Guarantee Trust Company or the Small Industries Development Bank of India will have a budgetary corpus of Rs 500 crore per year for the next four years.
The idea of such a fund was to leverage the institutional credit structure to reach out to underserved sectors, including Scheduled Castes and Scheduled Tribes and women entrepreneurs.
If Startups meet the criteria defined for them by the department to access any benefit announced in the Startup India Action Plan last year, including loans under the credit guarantee scheme, they would be able to avail this credit scheme too.
The government has relaxed tax conditions for startups in the FY2017-18 budget, allowing companies incorporated after March 31, 2016, to avail of a three year tax holiday in the first seven years of their existence. Earlier, this facility could be availed only for the first five years.
And the good news does not end here. The government is talking to public sector units to ensure that startups are not excluded from their procurement tendering process for lack of experience.The department is also monitoring the disbursal of money from the fund of funds by SIDBI for startups.