New Start To Startups! Government Launches New Guarantee Scheme To Help Early-Stage Businesses

The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has established the Credit Guarantee Scheme for Start-ups (CGSS) that would provide collateral-free debt funding of ₹10 crores to potential startups. The government of India, through this initiative, aims to build a startup culture and promote efficient businesses across the country.

According to officials, the credit facility would be extended by the commercial banks, Securities and Exchange Board of India registered alternative investment funds and non-banking financial companies. Amid the tightening liquidity conditions in the country, the scheme is expected to be a game-changer for the business sector.

Drastic Drop In Funding Of Indian Startups

The funding of Indian startups from private organisations has also dropped drastically this year. According to estimates, funding has decreased from $4.6 billion in January 2022 to $885 million in August. The funds offered by the government will add to on expected funds by startups to operate their business during the initial phase.

In a press release, the ministry said, " In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis. Transaction-based guarantees will promote lending by Banks/ NBFCs to qualified startups.

It added, "The extent of transaction-based cover will be 80% of the amount in default if the original loan sanction amount is up to ₹3 crores, 75% of the amount in default if the original loan sanction amount is above ₹3 crore, and up to ₹5 crores, and 65% of the amount in default if the original loan sanction amount is above ₹5 crores (up to ₹10 crores per borrower)."

Credit Scheme To Provide Ease Of Business

Earlier to the launch of this credit scheme, the startups faced numerous challenges in raising funds as banks perceived startups as high-risk proportions and Venture Capitalists were hard to convert. According to business experts, the new credit guarantee scheme will aid new-age startups to practice innovation and research through their businesses without any financial roadblocks.

According to an official statement, the National Credit Guarantee Trustee Company Limited (NCGTC) will run the scheme, and DPIIT will make Management Committee and Risk Evaluation Committee to review the operation of the scheme.

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