Startups to get up to INR5 crore loan without any collateral under the credit guarantee scheme

Under a new credit guarantee scheme prepared by the government, the startups will receive loans up to INR5 crore from the banks without any collateral. The scheme is awaiting cabinet approval and is likely to become functional soon under the supervision of the Department of Industrial Policy and Promotion. The government will provide up to 80% risk cover for the collateral-free credit given by the banks to startups. A senior official explained government’s move, and stated that “The scheme will help us address the most basic challenge of startups: access to capital. The corpus of the fund will also be guaranteed by the government. We are also looking at ways to increase availability of finance to startups. The credit guarantee scheme would help the flow of venture debt from the formal banking system”.

The credit guarantee scheme is not a new proposal though. The Startup Action Plan announced by Prime Minister Narendra Modi in January 2016 mentioned that a credit guarantee mechanism through the National Credit Guarantee Trust Company or the Small Industries Development Bank of India will have a budgetary corpus of Rs 500 crore per year for the next four years. However, the startups have to meet the criteria defined for them by the department to access any benefit such as under the credit guarantee scheme.