Seems like the government is finally starting to take care of the startups in India. The Make in India project already encouraged a lot of startups and tech companies. Make in India was an initiative of the government. Keeping its promise, the Government of India will offer a new credit guarantee scheme for Startup India Standup India.
The startups in India will get a loan of Rs 5 crore without any collateral. Speaking in financial terms, the Collateral is a property or an asset which the borrower offers as a security or guarantee for a loan. And as we know, if the borrower is unable to repay the loan, the lender can seize the collateral/asset.
What is the collateral for this scheme for Startups in India?
The government will become the guarantor for the startups. Thus, it will help the flow of venture debt from banks to the startups. The government will also offer 80% of the risk coverage for the collateral free credit from banks to the startups. At present, the scheme is awaiting the approval of the cabinet of ministers. It will soon become functional.
The Department of Industrial Policy and Promotion (DIPP) will supervise this scheme. If everything goes correctly, this scheme will bring immense relief to the startup companies. The most fundamental challenge a startup faces is to accumulate capital and investment help.
DIPP also asked suggestions from the stakeholders. It includes the startups, the venture capital funds, and angel investors. Prime Minister Narendra Modi announced the Startup Action Plan in January 2016. He mentioned a credit guarantee mechanism from the National Credit Guarantee Trust Company or the Small Industries Development Bank of India (SIDBI). These two corporations will have a budget of Rs 500 crore per year for the next four years.
Other initiatives from Government for startups
If we recall, among the many Startups in India schemes in last year, only one startup got the benefit of 10000 startup fund from the funds of SIDBI. Only one venture got Rs 5.66 crore. In December 2016, PM Narendra Modi announced the enhancement of credit guarantee scheme for the small, medium and micro enterprises for a loan up to Rs 2 crore. Before this, the Haryana government also announced to grant a loan of Rs 1 crore without any collateral.
The idea of this fund is to leverage credit and reach out to the underserved sectors that include the Scheduled Castes and Scheduled Tribes. The startups in India have to meet the criteria set up for them. The government already relaxed the tax conditions for startups in the budget of FY-2017-2018.
It will allow the companies after 31st March 2016, to get a three-year tax exemption in their first seven years of business. Earlier this facility was available for five years. The government is also engaging the private sector to make sure the startups are not left out due to lack of experience.