COVID-19 has been creating deep impact on start-ups, MSMEs and also effected thousands of other enterprises which are considered as economy’s backbone. The Covid 19 crisis has caused an unprecedented collapse in economic activities and as such all the production, selling, marketability of major entities has stopped.

Small Industries Development Bank of India (SIDBI) has initiated a scheme called COVID-19 Startup Assistance Scheme (CSAS) to ease the operational and financial challenges faced by the start-ups across the country. The government backed financial institution has moved a step forward to create an interim arrangement to support for start-ups.  The COVID 19 crisis is expected to be continued till June 2020 as per the industry.

CSAS and Process

Under this scheme, start-ups can avail a loan of up to Rs 2 crore with a tenure up to 36 months including the 12 months moratorium period. The loan has to be repaid within 24 months.

CSAS aims to provide financial assistance to start ups that will directly benefit from the scheme. The objective of the Scheme is to provide quick working capital in the next 45 to 60 days to the Start-ups.

SIDBI will have a team to scrutinize the application and grant the loan.

The eligibility criteria for the start-ups.

1. Start-ups as defined by the Government, which has received funding through at least one of the Alternate Investment Funds registered with SEBI.
2. Minimum employee base of 50 employees. (SIDBI may relax on merits of the case)
3. Turnover between INR 10 crore to INR 60 crore for the Financial Year 2018-19 and 2019-20.
4. Positive unit economics (Per Unit basis should be positive)
5. Incorporation within last 10 Years.
6. Positive Net Worth
7. Innovative measures for ensuring business continuity during COVID-19.Start-ups
8. Adequate steps are taken for employee safety and financial stability.
9. Investment of its own money into the business.

The loan shall carry an interest rate of 10.5% per annum.

The below category is not eligible

1. Written off Start-ups by AIFs
2. Start-ups who are in Stress usually other than the present Covid-19 (as recommended by the Fund Manager)
3. Start-ups having working capital facilities with any Bank.

Security

• Mandatory Security:

1. Charge on current assets of the Company
2. Keyman Insurance to the extent of facility amount disbursed to secure the facility.

• Additional Security

1. Hypothecation of the movables of the Company.
2. Pledge of Intellectual Property
3. Pledge of Promoter shares

Conclusion

This Scheme provided by the SIDBI will be a great help to Start-ups as it not only covers loans but also provides Insurance of which SIDBI will contribute 50% and mortarium for a period up to 12 months is provided for the repayment of the loan.

If the startup defaults in making the payment, then SIDBI will have the right to convert that defaulted instalment (s) including interest dues and all other costs and charges into equity capital of the Company.

If the start-up defaults on repayment of loan, then SIDBI will convert the outstanding loan amount into the equity, including the cost loan.