The Department for Promotion of Industry and Internal Trade (DPIIT) on 7 October notified the credit guarantee scheme for startups to provide them collateral-free loans up to a specified limit.
In a notification, it was stated that loan/debt facilities approved to an eligible borrower on or after 6 October would be eligible for coverage under the scheme.
“The Central Government has approved the ‘Credit Guarantee Scheme for Startups (CGSS) for the purpose of providing credit guarantees to loans extended by member institutions (MIs) to finance eligible borrowers being startups,” it said.
It added that this scheme would help provide much-needed collateral-free debt funding to startups.
MIs include financial intermediaries (banks, financial institutions, NBFCs, AIFs) engaged in lending/investing and conforming to the eligibility criteria approved under the scheme.
To be eligible for this program’s benefits, startups must be recognised, have a stable revenue stream that is amenable to debt financing as determined by audited monthly financial statements covering 12 months, be in good standing with all lending and investing institutions, and not be considered a non-performing asset as defined by the RBI.
“Maximum guarantee cover per borrower shall not exceed ₹10 crore. The credit facility being covered here should not have been covered under any other guarantee scheme,” the Department said.
For this scheme, the Indian government will establish a trust or fund, overseen by the Board of National Credit Guarantee Trustee Company Ltd as the Fund’s Trustee, to guarantee payment against default in loans or debt to eligible borrowers.
Additionally, it stated that lending institutions must examine credit applications using prudent banking judgement, apply business discretion and due diligence to choose commercially viable proposals, and manage borrower accounts with ordinary banking prudence.
These institutions should be required to monitor the borrower account closely.
The DPIIT will also establish a Management Committee to manage the trust’s affairs.
The committee will be in charge of reviewing, supervising, and monitoring how the trust is operating. It will also be required to give the trust the necessary guidance on broad policy issues about the scheme.
The Emergency Credit Line Guarantee Plan (ECLGS) had its scope increased by the finance ministry on 5 October to increase the maximum credit available under the scheme. To help the Covid-affected sector get through the liquidity crisis, the lending maximum under the plan was increased from 400 crores to 1,500 crores.
