10,801.401.75
Stock Analysis, IPO, Mutual Funds, Bonds & More

Startups may miss out benefits of new measures

They are hoping finance minister Nirmala Sitharaman will announce additional measures over the next few days.

Last Updated: May 14, 2020, 11.13 AM IST
0Comments
Getty Images
tech startup - getty
Under the scheme, businesses will be able to avail of a credit line from banks and non-banks up to 20% of their outstanding credit as of February 29.
BENGALURU| NEW DELHI: Most technology ventures in the country are unlikely to qualify for loans under an ambitious government scheme rolled out on Wednesday which makes available Rs 3 lakh crore in collateral-free automatic loans, according to people in startup ecosystem. They are hoping finance minister Nirmala Sitharaman will announce additional measures over the next few days.

Under the scheme, businesses will be able to avail of a credit line from banks and non-banks up to 20% of their outstanding credit as of February 29. Only borrowers with up to Rs 25 crore in outstanding loans and up to Rs 100 crore in turnover can qualify though.

“Startups find it very hard to get any form of credit, which is why they keep raising equity to fund working capital. So, for most of the startups which haven’t had the opportunity to get a line of credit as of now, they may not be able to avail of this,” said Siddarth Pai, founding partner at 3one4 Capital.

Startups, historically, have not qualified for loans from state-owned financial institutions, given the latter’s preference to lend to asset-heavy, profitable enterprises that can provide collateral for borrowings undertaken by them.

Additionally, there are concerns that, under the government’s definition of MSMEs, a significant chunk of Indian startups will miss out on availing benefits laid out under the Atmanirbhar Bharat Abhiyan scheme.

“Startups may restructure to classify themselves as MSMEs, but that will depend on their business activities. Simply meeting the turnover threshold, as defined by the government, does not make a startup eligible to be classified as one. Most startups, as you know, are in the technology space,” Atul Pandey, partner at Khaitan & Co, said.

However, startups that operate in manufacturing and ancillary services, may consider reclassifying themselves as MSMEs, he added. Some investors are asking their portfolio companies to register under the government’s Udyog Aadhaar scheme to be recognised as MSMEs. India’s venture capital investors are scrutinising Sitharaman’s announcement of infusing Rs 50,000 crore into MSMEs.

The finance minister said a Fund of Funds with a corpus of Rs 10,000 crore will be set up, which will be operated through a Mother Fund and a few Daughter Funds. The fund structure will help leverage Rs 50,000 crore of funds at the Daughter Funds’ level, while also encouraging MSMEs to list on the bourses. “For that to happen, family offices, insurance companies, provident funds and various other pools of capital will need to participate. We are keen to work closely with the government to ensure that this happens as soon as possible,” said Rehan Yar Khan, co-chair, Venture Capital Council, Indian Venture Capital Association.

Also Read

Startups, SMEs on the edge: Survey

Is it lockdown for startups?

People in distress are dialing legal-tech startups

Dell Technologies partners with Nasscom to help SMEs, startups

Fintech startup Zaggle joins hands with Visa to launch payment solutions for SMEs, startups

Microsoft announces program to accelerate growth of agritech startups

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service