Startup Credit Guarantee Scheme To Offer Loans Without Collateral: Central Govt

According to Department for Promotion of Industry and Internal Trade, debt facilities granted to qualified borrowers on or after October 6 would be covered in the scheme.

Govt Notifies Credit Guarantee Scheme For Startups (FILE)

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New Delhi: The central government has notified the credit guarantee scheme for startups in order to provide them loans without collateral up to a certain amount. The Department for Promotion of Industry and Internal Trade (DPIIT) while making the announcement said that loan and debt facilities granted to qualified borrowers on or after October 6 would be covered by the programme.

"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," the notification by the government read, as reported by PTI.

MIs include financial intermediaries (banks, financial institutions, NBFCs, AIFs) engaged in lending/investing and conforming to the eligibility criteria approved under the Scheme. This scheme would help provide the much-needed collateral-free debt funding to startups, the statement added. 

To avail the benefits, startups must be recognised, have a stable revenue stream that is amenable to debt financing as determined by audited monthly financial statements covering a 12-month period. They should also not be in default to any 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 Rs 10 crore. The credit facility being covered here should not have been covered under any other guarantee scheme," said DPIIT in the statement, as reported by PTI.

For the purpose of this scheme, a trust or fund would be set up by the government of India with the purpose of guaranteeing payment against default in loans or debt extended to eligible borrowers, managed by the Board of National Credit Guarantee Trustee Company Ltd as the Trustee of the Fund.

The DPIIT also stated that lending institutions must evaluate credit applications using prudent banking judgement, apply business judgement and due diligence to choose commercially viable proposals, and manage borrower accounts with standard banking prudence.

These institutions ought to be required to keep a tight eye on the borrower account.

A Management Committee will also be established by the DPIIT to manage the trust's operations.

The committee will be in charge of reviewing, overseeing, and monitoring how the trust is operating. It will also be required to provide the trust the appropriate direction on broad policy issues pertaining to the scheme.

(With inputs from PTI.)