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India ranks as the world’s 3rd largest start-up ecosystem as well as a home to approximately 75,000 Startups. Currently, there are 105 unicorns, out of which 44 came in 2021 and 19 in 2022.
Department for Promotion of Industry and Internal Trade, commonly known as DPIIT, is a department under the Ministry of Commerce and Industry, working towards the promotion and acceleration of industrial development of the country through facilitating investment in new and upcoming technology, FDI and support balanced development of industries.
DPIIT notified a new scheme on 6th October 2022, namely the Credit Guarantee Scheme for Start-Ups, which shall be discussed in this article to provide a better understanding of the same.
Table of Contents
The Credit Guarantee Scheme for Start-Ups aims to provide credit guarantees for loans without any collateral to the start-ups by the lending firms, i.e. Member Institutions (MI), wherein the exposure to individual cases shall be capped at Rs. 10 crores per case or the actual outstanding credit amount, whichever is less.
The credit guarantee scheme can be availed by start-ups that are –
The eligible lending firms are
In addition to this, there are certain banks that are on the official list of Commercial Lenders, which are
The essential documents for applying under the scheme are –
The credit guarantee covered under the Credit Guarantee Scheme shall be provided on the following basis.
In order to avail the guarantee cover on the basis of transaction, the Member Intuitions are required to pay an Annual Guarantee Fee of 2% of the disbursement/ outstanding to the Trust from the date as specified in the Credit Guarantee Demand Advice Note (CGDAN)[1] of the guarantee fee.
In case the start-up is situated in the North East Regions and unit handled by female entrepreneurs, the Member Institutions must pay an annual guarantee fee of 1.5 % of the disbursement/ outstanding to the Trust from the date as specified in the Credit Guarantee Demand Advice Note (CGDAN) of the guarantee fee.
The estimate of the upcoming Annual Guarantee Fee would be on the basis of outstanding loan/venture debt at the time of starting of the financial year along with the additional grant made during the first and the upcoming yrs out of the
total approved amount pro-rata basis
The guarantee shall commence from the day when the Member Institutions shall credit the proceeds of the Annual Guarantee Fee to the bank account of the Trust
However, the above limit shall be a maximum of INR 10 Crore per borrower.
The following shall do the management of the scheme
The Management Committee shall be constituted by the DPIIT , which shall manage the affairs of the trust as well as its supervision, review and monitoring.
The Management Committee shall constitute the following members
The Department for Promotion of Industry and Internal Trade, will constitute the Risk Evaluation Committee which shall report to the Management Committee. The members of the Risk Evaluation Committee would consist of retired bankers, credit guarantee experts, rating agencies, and venture debt specialists, among others.
The following must be noted while applying for the Credit Guarantee Scheme for Start-ups.
The guarantee cover will be provided for the period agreed upon for the credit facility. For working capital, guarantee cover is provided for a block of 5 years. Along with GST @ 18% shall apply on banking services and products.
Credit Guarantee Scheme for Startups 2022 can provide the much-required boost to the startup ecosystem and encourage start-ups having new business ideas requiring funding to flourish. It can be considered as an attempt of the Government of India towards providing financial assistance to the financially aggrieved startups together with creating a better funding environment for startups.
Read our Article: Guidelines for Credit Guarantee Scheme for Subordinate Debt
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