Startups are one step closer to being able to borrow money, with the Department of Industrial Policy & Promotion (DIPP) given charge of framing guidelines for a credit guarantee fund for them.

“Earlier, the matter was being dealt with by the department of finance. We have started the work and it should be finalised by September,” a senior government official said. The DIPP is part of the Ministry of Commerce & Industry.

After suggestions from stakeholders including startups, venture capital funds and angel investors, the government is looking at ways of increasing the availability of finance to startups.

The credit guarantee fund would help in the flow of “venture debt from the formal banking system,” the official said. The Startup Action Plan announced by Prime Minister Narendra Modi in January said that a credit guarantee mechanism through the National Credit Guarantee Trust Company or the Small Industries Development Bank of India (Sidbi) would get funding of Rs 500 crore annually for the next four years.

DIPP to set credit fund norms for startups “Access to capital is the biggest challenge for startups. We have not been able to get easy and collateral-free loans from banks yet. We hope to see this scheme operationalised soon,” said Gaurav Kachru, Founder of 5ideas, which supports startups.

Once the guidelines are finalised, they are likely to be submitted to the cabinet for approval. DIPP is also monitoring the disbursal of money from the fund of funds by Sidbi. Of the Rs 10,000 crore provisioned for startups, Sidbi has sanctioned Rs 168 crore for six alternative investment funds. “We are looking at ways to ensure that the funds reach the startups faster. There are many delays right now,” the official said.

In January, the government had approved the creation of a credit guarantee fund to back the Mudra Yojana under the Stand Up India scheme. The objective was to leverage the institutional credit structure to reach out to underserved sectors of the population, including Scheduled Castes and Scheduled Tribes and women entrepreneurs.

The Mudra credit guarantee fund is expected to guarantee over Rs 1 lakh crore worth of loans to micro and small units initially. Among other incentives for startups, the government has started providing tax exemption to eligible companies for three years from incorporation. Only companies registered after April 2016 can apply for the tax benefits. DIPP has proposed that the time limit for tax exemption be extended to seven years.

Source: The Economic Times