Credit Guarantee Scheme for Startups
The Government has formulated a Credit Guarantee Scheme for Startups (CGSS) with a corpus contribution of Rs 2,000 crore that will enable startups to raise loans without any collateral for their business purposes. The credit guarantee scheme will provide portfolio-based guarantees, and each portfolio will comprise at least 10 eligible startup loans during a particular financial year.
The proposed scheme provide credit guarantee up to Rs 5 crore per case inclusive of term loan, working capital or any other instrument of assistance extended by a member lending institution to finance an eligible borrower i.e. a Startup recognized by Department of Industrial Policy and Promotion (DIPP).
Key Initiatives Taken By DIPP
- Under the ‘fund of funds’ of INR 10,000 Cr, INR 623.5 Cr have been committed to 17 AIFs. 65 Startups have been funded.
- It recently revised the Startup definition thereby increasing the age limit from 5 to 7 years. For biotech startups, the age limit has been increased to 10 years.
- DIPP launched the Startup India Virtual Hub where all the stakeholders of the startup ecosystem can collaborate and synergize their efforts.
- Startups incorporated after March 31, 2016 could avail a tax holiday for three out of seven years, from the date of incorporation. Also, the tax rate for SMEs with an annual turnover up to $7.6 Mn was reduced to 25%.
- Job creation capability and financial standards of the startup are the new measures to avail benefits under the Startup India plan. 457 Tinkering Labs have been approved and 350 have received a grant of INR 12 lakh each. Pre-incubation training through 25+ mentorship sessions has been conducted.
This MSME scheme for entrepreneurs comes with a number of benefits, including term loans and/or working capital loan facility up to INR 200 Lakh per borrowing unit.
The main norms and preconditions of the CGSS
- Scheme will provide benefit to a Startup recognized by DIPP as per Gazette Notifications issued from time to time.
- For all resident Directors/Partners, Aadhaar shall be mandatory and for non-resident directors/partners, the passport number shall be a mandatory part of KYC norms.
- Member Lending Institutions (MLIs) under the scheme can be Scheduled Commercial Banks and Financial Institutions, RBI registered Non-Banking Financial Companies (NBFCs), SEBI registered AIFs, etc.
- The scheme will function under the trusteeship management of the National Credit Guarantee Trustee Company (NCGTC).
- Scheme shall provide portfolio- based credit guarantee. Each portfolio shall comprise at least 10 eligible start up loans, during a particular Financial Year.
- Coverage would be extended to the portfolio and the portfolio loss would be reckoned against the “net cash losses” during the portfolio life.
- Instruments of assistance could be in the form of Venture debt, working capital, debentures, Optionally Convertible debt, etc.
- MLIs may provide loans to up to any amount required by an eligible borrower. However, under the scheme the exposure for availing credit guarantee shall be limited to Rs.500 lakh per eligible borrower. Such loan will be extended by MLIs without any collateral security and/or third party guarantee.
- The Management Committee (MC) shall be responsible for the overall supervision and monitoring of the Credit Guarantee Scheme for startups.
- A Risk Evaluation Committee (REC) shall also be formed to address conflict of interest
- This information was given by the Commerce and Industry Minister Nirmala Sitharaman in a written reply in Rajya Sabha today.
Details of the scheme
- The guarantee cover provided is up to 75% of the credit facility up to INR 150 Lakh
- 85% of credit facility for loans up to INR 5 Lakh is provided to micro-enterprises
- 80% of credit facility for MSMEs owned/operated by women and all loans to NER including Sikkim
- For MSME Retail trade, the guarantee cover is 50% of the amount in default subject to a maximum of INR 50 Lakh.
The credit guarantee will commence from the date of payment of guarantee fee and will run through the agreed tenure of the term credit in case of term loans/composite loans and for a period of five years where working capital facilities alone are extended to borrowers, or for such period as may be specified by the guarantee trust.
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