SIDBI’s new COVID-19 Startup Assistance Scheme

General   wpadmin   June 29, 2020

Executive Summary:

  • Startup Assistance Scheme provides assistance to startups that will directly benefit from the scheme.
  • This scheme is to provide quick working capital in the next 45 to 90 days to startups.
  • Through this scheme, startups can receive a loan of up to INR 2 crore.
  • This article will elaborate all the relevant details for SIDBI’s Startup Assistance Scheme.

Introduction:

Startups across India are witnessing a steep crash in the cash flows due to the countrywide lockdown due to the Coronavirus outbreak. Recognizing these problems, Small Industries Development Bank of India (SIDBI) has come up with a move to rescue startups from this downfall -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.

Purpose of the CSAS:

The Scheme is aimed to provide quick working capital in the next 45 to 60 days to the Start-ups based on the eligibility criteria detailed in the Scheme.

The purpose of introducing the COVID-19 Startup Assistance Scheme (CSAS) is to provide interim support to growth-stage startups whose cash flow and liquidity have been adversely impacted by the Corona Virus pandemic. The financial assistance provided under the CSAS can be used for various working capital requirements of the startup, such as:

  • Salaries/wages
  • Rent
  • Administrative expenses
  • Payment to vendors

The loan provided under the COVID-19 Startup Assistance Scheme (CSAS) will be considered against the GST refund.

Tenor and Amount of Loan:

  • The tenor under the CSAS loan is three years, including a maximum moratorium period of 1 year, and the Startups need to repay the loan amount maximum of 24 instalments.
  • SIDBI is providing Rs.2 Crores for eligible startups under the COIV-19 Startup Assistance Scheme.
  • Eligibility Beneficiaries of CSAS:

    The eligibility criteria to obtain financial assistance under the COVID-19 Startup Assistance Scheme are as follows:

    • Those who have recognition as a ‘start-up’ by the Government which have funding by an Alternate Investment Fund (“AIF”) registered with SEBI are eligible for CSAS.
    • Where a startup with a minimum employee base of 50, which may include contracted employees then such a startup can apply for financial assistance under the COVID-19 Startup Assistance Scheme (CSAS).
    • Those Startups which have demonstrated innovative measures for ensuring business continuity during the COVID-19 period are eligible to get financial assistance.
    • Startups should have a minimum turnover between INR 10 to 60 crores in the financial years 2018-19 and 2019-20.
    • To become eligible for this scheme, startups should have positive unit economics and positive net worths.
    • Those Startups which have been incorporated for less than 10 years can apply for this scheme.
    • Those Startups which have undertaken adequate measures and ensured employee safety and their financial stability;
    • The promoter/founder of a startup should have invested their own capital in the business.

    Non Eligible Categories under CSAS:

    The following categories of start-ups are not eligible under CSAS:

    • a) Startups which are written off by AIFs.
    • b) Startups which are in stress due to factors other than COVID-19.
    • c) Startups which have existing working capital facilities with a bank.
    • d) Startups that do not have strong Intellectual Property or Innovative.

    Process to avail the loan:

    • The eligible start-ups looking to obtain a working capital term loan under CSAS are required to fill an application cum Credit Appraisal Memo (CAM) along with Self-Assessment Tool (SAT) on the SIDBI portal
    • They are required to fill the CAM, SAT and submit the documents to a designated email within 30 days of launch. The Recommendation Committee will run a process.
    • The proposed Internal Credit Committee (ICC) of SIDBI will hold a weekly meeting to approve loans to startups.
    • The Loan Agreements and related documentation will be completely digital.
    • The entire process of application, approval and grant of loans has been made completely digital, including meetings between the ICC and the start-up/VC investor through video conferences, and digital execution of loan agreements.

    Documents for CSAS:

    The following documents are mandatory for applying for COVID-19 Startup Assistance Scheme (CSAS):

    Promoters and Guarantors:

    • Bio-data and Net worth Statement
    • Photographs, signatures attested by bankers
    • Copies of passport/ PAN card/Aadhaar card
    • Three years of Income Tax Return and wealth tax returns
    • Net Worth statement

    Applicant Company

    • DPIIT Registration details/Copy of MSME registration/EM under MSMED Act.
    • Certified copies of KYC documents like MAOA, Partnership deed, PAN allotment letter, Copy of Telephone Bill.
    • The last two years audited financial statements of the enterprise and associate concerns with auditor’s report, notes to accounts, and tax audit report.
    • Provisional balance sheet and Profit and Loss Statement (P&L) of the enterprise as on the latest date.
    • Latest 2-year ITR and Sales tax return, copy of the latest receipt for advance tax paid. Copy of IT assessment orders for the past two years.
    • Copies of registration with statutory authorities viz GST, EPF, etc
    • Copies of other statutory approvals obtained.
    • Copies of sanction letters for credit facilities from Banks.
    • Bank statement of all bank accounts for the past one year.
    • Copy of the latest CMA data submitted to WC banker, if any.
    • Pollution Control Board approval document for existing and proposed units.
    • Copy of sale, lease deed, rental agreement.

    CSAS Security Details:

    SIDBI is seeking a first charge on the current assets of the start-up, and if available, additional security interest in hypothecation of movables of the firm, pledge of intellectual property and pledge of promoter shares.

    An additional security stipulation is in the form of a ‘keyman insurance’ to the extent of the amount disbursed, to secure the loan.

    The loan shall carry the following insurance:

      a. Key-man insurance assigned to SIDBI; and

      b. All employee term insurance up to INR 10 lakhs (approximately USD 13,000). 50% of the cost of premium for the said insurance will be borne by SIDBI and the other 50% is to be borne equally by the investor(s) and the start-up.

    Key Terms:

      a) Interest Rate: – 10.5% per annum at reducing balance;

      b) Disbursement Mechanism: – SIDBI will provide the loan to eligible startups according to the need of the firm in single or multiple tranches.

      c) Processing Charges: – Startups need to pay 2% of sanctioned amount as a processing charge to SIDBI.

      d) Conversion in case of Default: – Conversion of defaulted instalment(s) along with accrued interests, penal interests and other costs and charges into equity capital of the start-up ‘at par’, in case of continuing default.

      e) Share Warrant Option for CSAS Scheme: – At any time, during the currency of the Working Capital Term Loan, SIDBI will have the right to subscribe to Upto 10% of the Loan Amount with a 50% discount to the previous tranche.

      f) Sanctioning Authority: – Internal Credit Committee to be set up by SIDBI.

      g) Source of Fund: – SIDBI’s Balance Sheet as SIDBI will directly provide the facility to start-up.

      h) Other Conditions: – The assistance loan provided under the COVID-19 -CSAS cannot be used to pay any debt, including Venture Debt, and the amount will not be subordinated debt. The promoter /investor of the startup cannot sell shares without SIDBI’s consent.

    Conclusion:

    CSAS is a welcome proposal launched by SIDBI which recognizes the extraordinary circumstances around COVID-19 and the resultant cash-crunch faced by several companies in the start-up ecosystem. It allows SIDBI to step in and lend to start-ups on an urgent basis. This can prevent involuntary down-rounds and help protect the management and angels from being wiped out. From a company perspective, it provides some measure of interim stability and ensures continuity of services and employees.

    Further, by excluding entities which already have working capital arrangements with banks or are otherwise in danger of a write off, CSAS guides the recommendation committee to lend to those entities which are truly in need of a lifeline due to COVID-19.

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