A couple of days ago, we reported that DIPP has proposed a collateral free loan for startups under ‘Credit Guarantee Fund. Now, we have received confirmation that the government is soon going to launch this Credit Guarantee Fund with a corpus of Rs.2000 crores.
Talking about the startups this fund will cater to, the Secretary of Department of Industrial Policy and Promotion (DIPP), Mr. Ramesh Abhishek said that, the motive is to support their ventures and risk taking abilities. He further added,
We are in the process of setting up a credit guarantee fund of Rs 2,000 crore corpus that will provide up to 80 per cent risk cover for collateral free credit being given by banks to startups.
This was announced when he was addressing a conference on Start Up India, Challenges and Sustainability, organized by the PHD Chamber of Commerce and Industry. He further added that with this corpus of Rs.2,000 crores in place, the Start-Ups would receive financial support from banks and financial institutions with collateral free guarantee.
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.
While we currently do not have any timeline as to when the Credit Guarantee Fund will come into existence, DIPP Secretary has suggested that with the fund being operational in near future, the start-ups in the country could look up for financial assistance for their ventures that would be available easily.
Along with this new fund, it was also revealed at the event that the government is also working on the relaxations on existing taxes for start-ups. He further suggested that this is one of the top priorities of the Modi government as it would not only create wealth for promoter of such ventures but also facilitate employment creation.
Further, the department is also going to roll out a learning module for startups and entrepreneurship. With the interaction and feedback from startups, the DIPP has identified about 25 issues including things related with employee stock ownership plans (ESOPs) on which the department is now known to focusing its attention on.