Hundreds of game-changing ideas are flushed majorly due to the inadequacy of capital. While a few early stage ventures amass wealth from venture capitalists and seed investments, many of them still lack solid collateral to access bank loans. To now resolve the matter concerning a plethora of startups in India, the government has prepared a fresh credit guarantee scheme. This will enable startups to access loans of up to ₹5 crores without any need of security deposits.
As reported by ET, the scheme is awaiting cabinet approval and is likely to become functional soon under the supervision of DIPP (Department of Industrial Policy and Promotion). The purpose of this new scheme is to channelize the flow of venture debt from the formal banking system. To address the recovery concerns of banks, the government will further provide up to 80 percent risk cover for collateral-free credit issued.
A senior official known to the development spoke to ET and said,
The scheme will help us address the most basic challenge of startups: access to capital. The corpus of the fund will also be guaranteed by the government.
The involvement of startups in the Indian economy has increased at an accelerating pace over the last decade. These ventures not only open up fresh employment opportunities in the nation but also attract foreign direct investments. In a bid to transform the country into a digital nation, the government is looking at ways to increase the availability of finance to startups.
DIPP has also asked startup founders, venture capital funds, and angel investors to advance their views on the present credit system and provide suggestions for its improvement. The scheme soon to launch was announced back in January 2016 during PM Narendra Modi detailing the Startup Action Plan.
The scheme will be operational from the National Credit Guarantee Trust Company or the Small Industries Development Bank of India and will have a budgetary support of Rs 500 crore per year for the next four years. It will touch every sector of the economy including Scheduled Castes, Scheduled Tribes and women entrepreneurs among other underserved areas.
The startups who fulfill the criterion defined under the Startup India Action Plan, announced last year will be considered eligible by the department including the benefits of credit guarantee scheme.
Apart from the scheme, the government previously allowed startups incorporated after 31 March 2016 avail a three-year tax holiday in the first seven years of their existence. The department is also involved with the supervision of disbursal of money from SIDBI’s funds for startups.