The Indian government lately shifted its focus upon nurturing startups which can generate jobs for the masses. The govt. has eased several processes related to the registration and initial operation of these companies. The GOI also set up a Rs. 10,000 crore ‘Fund of Funds for Startups’. Now, in another scheme that is likely to receive a rousing welcome from the startup community, DIPP has proposed collateral free loans for startups.
Ramesh Abhishek, Secretary of Department of Industrial Policy and Promotion, has revealed that DIPP is soon going to launch a corpus of Rs 2000 crore, which is aimed at providing collateral-free loans to startups.
As per a report from Trak.in, a proposal has already been sent to the cabinet to create a special ‘Credit Guarantee Scheme’. Once approved, this scheme will enable banks and other financial institutions to provide loans to startups without any collateral.
Unlike the usual procedure for obtaining loans, where banks ask for stuff like collateral, track record, revenue flow, previous balance sheets, etc.this scheme makes the process significantly easier. Here banks focus their attention on things that would be more relevant to an up and coming company and would affect its chances to become successful, such as the promoter team, investor’s profile, innovative ideas and revenue visibility.
Earlier this year, Government of India set up a special Rs. 10,000 crore fund, called ‘Fund of Funds for Startups’. Under the scheme, SIDBI was allowed to allocate funds to various Alternate Investment Funds (AIF) registered under SEBI, which in turn would fund emerging startups in India.
While its been around five months since the fund has been set up, the disbursement of the fund has been slow, as admitted by the government too. In a recent event of World Economic Forum, the government said that from the total corpus of Rs. 10,000 crore, only 600 startups have been funded, accounting for a total amount of Rs. 1100 crore.
Department of Industrial Policy and Promotion (DIPP) secretary Ramesh Abhishek has assured investors and entrepreneurs that they will now fast-track the process, and more startups will be at the receiving end of assistance through the Fund of Funds route.
While the Govt. is supporting Alternate investment funds, AIFs need to meet certain conditions to raise funds from the Fund of Funds. From needing to register with SEBI under AIF Regulations, 2012, they should also have a fund term of up to 10 years along with a commitment of up to five years.
Moreover, AIFs with a corpus up to 500 crores need to invest 50% of the corpus or twice the SIDBI’s contribution, whichever is more. Similarly, AIFs with more than 500 crores corpus have to invest Rs 250 crore or twice the contribution of Sidbi, whichever is more.