SIDBI launches Covid-19 assistance scheme to ease startups’ working capital pain

Small Industries Development Bank of India (SIDBI) has launched an initiative to help startups navigate the mounting operational and financial pressures arising from the coronavirus pandemic.

The Covid-19 startup assistance scheme (CSAS) will provide quick working capital loans up to Rs 2 crore to startups whose cash flow and liquidity have been adversely impacted by the pandemic. The loan can also be considered against the startups’ GST refunds.

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A recommendation committee comprising of five members – three from SIDBI and its nominees and two from venture capital industry - will be created for faster processing of funds.

The committee will conduct credit evaluation, video conference with the startup and VC investor to recommend them to its internal credit committee (ICC). The ICC will hold weekly meetings to approve loans. The loan agreements and related documentation will be completely digital, according to the scheme documentation.

The loan repayment tenure is set at 36 months including maximum moratorium period of 12 months. Loans are granted at an interest rate of 10.50% per annum on a reducing balance basis. The loan has to be repaid in a maximum of 24 instalments.

SIDBI, which doesn’t otherwise offer credit, is sourcing funds from its balance sheet for this scheme as an interim measure to help startups. 

“SIDBI does not extend credit to startups and only specializes in equity and fund infusion, it is starting this scheme in view of an unprecedented situation and the consequential cash crunch faced by many startups. This is purely an interim arrangement,” the note read.

In case of default in repayment for more than 180 days, the state-run financial institution will have the right to convert the defaulted instalments along with its accrued interests, penal interests and all other costs and charges into equity capital of the company ‘at par’.

The loan cannot be used to pay any debt including venture debt. SIDBI also bans promoters or investors from selling shares without SIDBI’s consent.

Startups need to meet the following criteria to avail the loan:

Government-defined startups which have raised capital from Alternate Investment Funds (AIFs) registered with SEBI.

Startups should employ at least 50 people.

• Minimum revenue turnover between Rs 10 crore to Rs 60 crore during FY 2019 and FY 2020.
• The startup should have positive unit economics.
• The company should have been incorporated for less than 10 years.
• It should have a positive net worth.
• It should have demonstrated innovative measures for ensuring business continuity during the Covid -19 period.
• It should have taken adequate measures and ensured employee safety and financial stability.
• The promoter/founder of the startup should have invested his own capital in the business.