BENGALURU: A large number of early to mid-stage startups are unlikely to be able to qualify for the cabinet approved Rs 3 lakh crore emergency credit line even when they are registered as an MSME. According to entrepreneurs and investors, a startup needs to have existing debt on its books to qualify for this loan facility from the government. Venture-debt, a popular instrument used by startups, and shareholder loans, won’t make the cut as debt for startups.
Profitability is another angle that is making startups anxious about their chances to avail such collateral-free loans or even the Rs 50,000 crore MSME fund-of-fund programme announced by the government in last week. This comes as a recent Nasscom survey said that 70% of startups have cash for less than 3 months and even the unicorns have had to undertake large-scale layoffs.
“You need to be a registered MSME and have debt. We are registered as an MSME but we don’t have any (existing) debt,” said Gautam Patil, co-founder and CEO, Loca, a mobility of startup.
The amount of Guaranteed Emergency Credit Line (GECL) funding to eligible MSME borrowers — either in the form of additional working capital term loans (in case of banks and financial institutions, or FIs), or additional term loans (in case of NBFCs) — would be up to 20% of their entire outstanding credit up to Rs 25 crore as on February 29, 2020. The government has set aside a corpus of Rs 41,600 crore, spread over the current and next three fiscals.
“Unfortunately, startups have been left out of most of the meaningful announcements by the government. The scope of the announcements will be limited. Even the fund-of-fund of Rs 50,000 crore, the government will contribute about Rs 10,000 crore and rest would come externally. Fund-raise right now is going to be next to impossible, except some large ones,” said Siddarth Pai, founding partner at 3one4 Capital.
The earlier startup funds of funds run bySIDBI has been able to allocate Rs 3,798 crore to venture capital funds out of the corpus of Rs 10,000 crore. While government announcements were targeted for all MSMEs and not just technology startups, some of these startups are in need of capital.
“Startups hardly get money from nationalised banks, or NBFCs. So, many government announcements won’t be applicable to them. Also, a bank looks at a business differently than a venture-capital investor. An investor is ready to wait, banks are looking at profit road-map,” said Sreejith Molaalayil, co-founder and COO, True Elements, a consumer food startup.
