38% startups out of funds, 4% shut down business due to lockdown effect !!

New Delhi: A survey has revealed that about 38% start-ups have run out of funds and 30% have 1-3 months of cash left, indicating the severe impact of lockdown on fledgling businesses. According to the online survey by Local Circles  which sought over 28,000 responses from more than 8,400 start-ups, SMEs and entrepreneurs —

  • 16% such entities said the they have 3-6 months of cash left.
  • Another 12% respondents said they have less than a month’s worth of cash left.

“4%  also said that they have already shut down the business due to the lockdown effect,” the report noted. LocalCircles’ report assesses the impact that COVID-19 pandemic and the following lockdown have had on the start-ups and SMEs or small and medium enterprises of India. “Many businesses have reported a revenue drop of more that 80-90% in the last two months making it hard for them to even sustain their business,” it said.

The comparison from April to June 2020 showed that percentage of start-ups and SMEs out of funds has risen from 27% – 42%, showing a worrisome situation, it added. These organisations are cutting or deferring marketing and human resource costs to sustain their business. Interestingly, 35% said they see growth in their business in the next six months and equal percentage said they would be scale down.

About 14% said they see their business getting shut down, while 16% said they were quite unsure of the future. Asked if they expect to be benefitted by the stimulus package announced by government, only 14% said ‘yes’, while 57% said ‘no’ and the remaining 29% were unsure about it.  The Cabinet had approved a Rs. 3 lakh crore emergency credit line to the micro, small and medium enterprises (MSMEs) to help them sail through the crisis.

“But a large number of start-ups might not be able to avail these benefits under the Atmanirbhar Bharat scheme but even if they are registered as MSMEs. This is because a start-up needs to have existing debt/loans on their books to qualify, but most start-ups usually opt for VC (venture capital) funding, which makes them ineligible for this Government scheme,” the report noted.

It added that most start-ups and SMEs can’t afford to chase the paper work as well as loans/funds for months and still sustain their business. “The need of the hour was and is assistance that reaches upto bank accounts fast and fast in the context of start-ups and SMEs means now as 42% of them are already in shut down or out of funds status,” the survey said.


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