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COVID-19 Startup Assistance Scheme (‘CSAS’) In India

The COVID-19 pandemic is impacting individuals, families, businesses and communities globally. The countries affected, including India, are in a state of lockdown for the protection of the health of their people, but the impact on affected countries and duration of the lockdown and economic crisis thereof cannot be determined definitively.

The coronavirus lockdown in India will affect our country in many ways; it has shaken the world economy as well as the Indian economy and to deal with the issues businesses and individuals would face, the government has released numerous coronavirus schemes in India.

How Has Coronavirus Impacted Indian Economy?

In the Indian economy, the colossal impact has been on the startups, small and medium enterprises, along with millions of such enterprises which are considered as the economy’s backbone. These businesses have been severely affected, and as such, all the production, selling, marketability of such entities have stopped.

In the times where people need to stay indoors and away from each other, the challenges faced by startups, particularly the ones with a high physical component, are only increasing and the virtual communication and business management tools are taking on more burden to keep things ticking. Tech giants like Google and Zoom are offering their services free for a limited time for businesses to use as a conferencing and collaborating tool

Now, the eyes are on the government to help these businesses and support them to mitigate the impact of Coronavirus so that they can pay salaries to their employees and bear the cost of their unavoidable expenses.

COVID-19 Startup Assistance Scheme By SIDBI

The Small Industrial Development Bank of India (SIDBI) has initiated the Scheme called Startup Assistance Scheme (CSAS) as a measure to provide relief for the operational and financial challenges faced by the startups.

This Scheme will assist a startup that has the capability to adapt to the economic impact of COVID-19 and ensure its employee’s safety and financial stability.

COVID-19 Startup Assistance Scheme and Process

Under this Scheme, SIDBI will provide working capital to the startups in the next 45-60 days to provide them with interim support when their cash flow and liquidity have been affected.

SIDBI will have a team to scrutinize the application and grant the loan.

Procedure to Avail the CSAS Coronavirus Scheme

1. The Scheme documents will be available on the SIDBI website.
2. An application, Credit Appraisal Memo (CAM), and Self-Assessment Tool (SAT) will be made available on the SIDBI website.
3. Eligible startups can fill the CAM, SAT, and submit the documents to a designated email id within 30 days of the start of the Scheme.
4. The Recommendation Committee will process an application through credit evaluation, Video Conference with the Startup, and VC Investor.
5. After that proposed Internal Credit committee of SIDBI (ICC) will hold a weekly meeting to approve loans to Startups. During the ICC meetings, the Startups, VC Investor She is required to be available for a Video Conference meeting.
6. Results, either approval or rejection, will be communicated on the same day by email. 
7. Loan Agreements and related documentation will be entirely digital.

Loan Amount & Tenure

The loan amount would be up to a limit of INR 2 Crore per startup.

The tenure to repay the amount is up to 36 months, including a maximum moratorium period of 12 months. The loan would be repaid in a maximum of 24 instalments.

Eligibility

The government has defined startups which have received funding through at least one of the Alternate Investment Fund registered with SEBI.

• Turnover between ’10 crores – ’60 crores in FY 2018-19 and FY 2019-20
• Incorporation within last 10 Years.
• Direct revenues and costs associated with a particular business model expressed on a per-unit basis should be positive; this known as “unit Economics”.
• Positive Net worth.
• Innovative measures for ensuring business continuity during COVID-19.
• Adequate steps are taken for employee safety and financial stability.
• Investment of its own money into the business.
• No written off has made in the past.
• Not into the stress into the industry under Present COVID-19.

Insurance for Employees

Each loan to eligible Startups will carry the following Insurance:

1. Key Man insurance assigned to SIDBI.
2. All employee term Insurance up to 10 lakhs.

The premium shall be levied in the following manner:

• 50 Percent by SIDBI
• 25 The percent by Investor Fund
• 25 Percent by Start-up

The share of Start-up may be withdrawn from the loan disbursement amount.

Security

Mandatory Security:

Charge on current assets of the Company Keyman Insurance to the extent of facility amount disbursed to secure the facility.

Additional Security, it will be available as:

• Hypothecation of the movables of the Company. 
• Pledge of Intellectual Property
• Pledge of Promoter shares

Interest Rate

• 10.50% p.a. reducing balance
• Disbursement Mechanism
• Need-based single/multiple tranches

Share Warrant Option

At any time during the loan, SIDBI will have the right to subscribe up to 10% of the Loan Amount with a 50% discount to the previous tranche.

Processing Charges

1% of the sanctioned amount

Conversion, If There Is Default

In case of Default in repayment/payment of principal or interest instalment(s) continuing for more than 180 days, then SIDBI will have the right to convert that defaulted instalment(s) along with its pending interests, penalty and other charges (either in full or in part) into equity capital of the Company “at par.”

Other Conditions

1. The assistance cannot be used to pay any debt, including Venture Debt.
2. It will not be a subordinated debt. 
3. The promoter or investor cannot sell shares without SIDBI’s consent.

Legal Documentation

As per the facility and Security provided.

Recommendation Committee

Recommendation Committee to be set up by SIDBI.

Sanctioning Authority

Internal Credit Committee to be set up by SIDBI.

Source of Fund

SIDBI’s Balance Sheet as SIDBI will directly provide the facility to startups. 

Conclusion

This COVID-19 Startup Assistance Scheme provided by the SIDBI will be a great support to Startups as it not only covers loans but also provides Insurance in which 50% will be contributed by SIDBI and provided on a mortarium period of 12 months for the repayment of the loan. Further, SIDBI generally doesn’t provide credit to Startups; it specializes in equity infusion. If the startup defaults in making the payment, then SIDBI will convert the loan into the equity of the amount, including all the cost.