With corpus of Rs 2000 crore, DIPP to ensure credit guarantee fund for startups

The Department of Industrial Policy and Promotion (DIPP) is planning to channelize the fund which was announced by the Prime Minister as part of the Startup India action plan in January 2016, as credit guarantee for budding entrepreneurs.

In an attempt to provide easy loans for startups, the DIPP will move a cabinet note ensuring a credit guarantee fund for new entrepreneurs.

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The Fund will be used by the government to stand guarantee for loans given to startups. Each startup will be eligible for loans up to Rs 5 crore without collateral under the credit guarantee scheme. The fund managed by the DIPP has a corpus of Rs 2,000 crore and will enable greater financial support to fledgling platforms.

“We have finalised the details of how the Fund has to be managed. A cabinet note will be moved soon,” a senior government official told ET.

However, only those startups which have been recognised and certified by the DIPP can access the credit guarantee fund. The certified startups can avail of income-tax exemption for three consecutive assessment years in a block of seven years.

Till now, the DIPP has recognised 2,865 startups and 60 of them have been approved for a tax holiday.

A ‘fund of funds’ of Rs 10,000 crore managed by Small Industries Development Bank of India has committed Rs 623 crore to alternative investment funds and financed 67 startups.

The idea behind the fund was to leverage the institutional credit structure to reach out to underserved sectors, including SC/ST and women entrepreneurs.

It has spelt out provisions that allow startups to raise money from overseas from venture capital funds and others through instruments such as convertible notes.

To issue convertible notes, the startups will need to have government approval in sectors where FDI is not under the automatic route. The government recently broadened the definition of startups to include scalability of business model with potential of employment generation or wealth creation.