Startups secured loans of Rs 10-cr each under new scheme

The government has notified a Credit Guarantee Scheme for Start-ups (CGSS) under which lenders will provide collateral-free loans of up to Rs 10 crore to each eligible borrower.

Loans or credit facilities extended to an eligible start-up on or after October 6 may be covered by the program, the Department for Promotion of Industry and Internal Trade (DPIIT) said in a notification. The loans will be backed by a sovereign guarantee.

The move is aimed at supporting start-ups that are being hit hard by the pandemic and are now going to be even more impacted by the scenario of rising interest rates when liquidity is unlikely to be readily available for newcomers. contractors. Already, the government has rolled out the Rs 5 trillion Emergency Credit Line Guarantee Scheme (ECLGS) for businesses affected by Covid. The latest program, although aimed solely at start-ups, will complement the government’s efforts, through various programs, to ensure a smooth flow of credit to businesses in the aftermath of the pandemic.

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Funds raised by Indian startups between January and September fell 19% year-on-year to $22 billion, according to Inc42’s Indian Startup Funding Report for Q3 2022. analysts, most of the funds are taken by relatively solid startups. . More than 75,000 start-ups recognized by the DPIIT can benefit from the scheme if they meet certain conditions.

DPIIT-recognized startups that have achieved a stable revenue stream, as assessed from 12-month audited monthly statements, and are eligible for debt financing will be eligible for these loans. However, they must not be in default with a credit/investment institution and must not have been classified as non-performing assets. Likewise, they must not have benefited from any other guarantee scheme, according to the notification of the DPIIT.

Lenders that will provide startups with much-needed unsecured debt financing include financial intermediaries, such as banks, financial institutions, non-banking financial firms, and alternative investment funds.

To implement the program, the government will establish a trust or fund to guarantee payment in the event of loan default. The board of directors of the National Credit Guarantee Trustee Company will be the trustee of such a fund.

According to the notice, lenders will need to assess credit applications using prudent banking judgment. They must exercise commercial discretion and due diligence in selecting commercially viable proposals and maintain borrower accounts with normal banking prudence. They should also closely monitor the borrower’s account.

In addition, the DPIIT will form a management committee to oversee the affairs of the trust.

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