Startups are young, dynamic and innovative in nature and usually have a resource-crunch. Currently facing lockdown situations across the world due to the COVID-19 outbreak, startup founders need to find innovative ways of running their businesses. They need to provide for their working capital requirements and at the same time plan for future growth. The Government of India is taking proactive steps to facilitate businesses and startups impacted by the COVID-19 lockdown.
In this regard, Small Industries Development Bank of India (SIDBI) recognizes the operational and financial challenges being faced by startups and has been making efforts to provide financial assistance and stability to such startups through schemes like COVID-19 Startup Assistance Scheme (‘CSAS’). This scheme will provide assistance to innovative startups that have demonstrated ability to adapt to economic impact from Covid-19 and ensured its employees’ safety and financial stability. SIDBI does not extend credit to startups and only specializes in equity and fund infusion, it is starting this Scheme in view of unprecedented situation and the consequential cash crunch faced by many startups. This is purely an interim arrangement.
The scheme and the process
CSAS provides assistance to startups that will directly benefit from the scheme. The objective of this scheme is to provide quick working capital in the next 45 to 90 days to startups. Therefore, for a faster processing, a Recommendation Committee comprising of 5 members (3 from SIDBI and its nominees and 2 from Venture Capital industry) will be created. Through this scheme, startups can receive a loan of up to INR 2 crore. The process followed for screening by the application shall be as follows:
- The scheme document shall be available on SIDBI portal.
- An application cum Credit Appraisal Memo (CAM) along with Self-Assessment Tool (SAT) shall be made available on the SIDBI portal
- Startups are required to fill the CAM, SAT and submit the documents to a designated email id (firstname.lastname@example.org).
- The Recommendation Committee will run a process, which will include a credit evaluation, video conference with the startup and the VC investor.
- Thereafter, the proposed Internal Credit Committee (ICC) of SIDBI will hold a weekly meeting to approve loans to startups. During the ICC meetings, startups along with the VC investor may be required to be available for a video conference meeting.
- Approval or rejection will be communicated on the same day by email.
- The Loan Agreements and related documentation will be completely digital.
The scheme will be launched all throughout the country, for government defined startups, based on the eligibility criteria detailed in this scheme.
Purpose of the scheme
To provide interim support to startups whose cash flow and liquidity has been adversely impacted by the COVID-19 pandemic. This assistance can be used for various working capital requirements like salaries/wages, rent, administrative expenses, payment to vendors etc. The loan may also be considered against GST refunds.
Eligible criteria for startups
- Government defined startups which have received funding through at least one of the Alternate Investment Fund registered with SEBI.
- Startups with a minimum employee base of 50 employees. This may also include their foot soldiers (Relaxable on a case-to-case basis).
- Startups having FY 2019 and FY 2020 minimum turnover between INR 10 crore to INR 60 crore.
- Startups should have positive unit economics.
- Startups should have been incorporated for less than 10 years.
- Startups should have a positive net worth.
- Startups should have demonstrated innovative measures for ensuring business continuity during the COVID-19 period
- Startups should have taken adequate measures and ensured employee safety and financial stability
- Promoter/founder of startup should have invested their own capital in the business
Startups under the below categories are not eligible:
- Startups written off by AIFs
- Startups that are in stress other than the present Covid-19 (as recommended by their Fund Manager)
- Startups having working capital facilities with any bank
Tenure of the Loan
Up to 36 months, including maximum moratorium period of 12 months. Loan to be repaid in a maximum of 24 instalments.
Insurance for Employees
Each loan to startups will carry the following insurance:
- Keyman insurance assigned to SIDBI
- All employees’ term insurance up to INR 10 lakhs
The cost of premium shall be borne in the following pattern:
50% by SIDBI;
25% by the investor fund;
25% by the startup.
The share of startup may be apportioned in the loan disbursement amount.
• First Pari-Passu charge on current assets of the company
• Keyman insurance to the extent of the amount disbursed to secure the facility
Additional Security, if available:
• Hypothecation of movables of the company
• Pledge of Intellectual Property
• Pledge of promoter shares
The interest rate for the loan under the scheme shall be 10.50% per annum, reducing balance.
Share warrant option
At any time, during the currency of the WCTL, SIDBI will have the right to subscribe up to 10% of the loan amount with 50% discount to the previous tranche.
Conversion in case of default
In case of default in repayment/payment of principal or interest instalment(s) continuing for more than 180 days, SIDBI will have the right to convert that defaulted instalment(s) along with its accrued interests, penal interests and all other costs and charges (either in full or in part) into equity capital of the company “at par”.