India’s startup ecosystem has grown significantly over the past decade, fueled by innovative ideas, technological advancements, and a supportive policy framework. To harness this growth and encourage entrepreneurship, the Government of India has introduced various schemes and benefits under the “Startup” status. This article explores what qualifies a company as a startup, the duration of this status, the eligibility for funding, and the financial facilities available, such as Mudra loans.
1. What is a “Startup” Status?
In India, the Startup India initiative, launched by the Government of India in 2016, provides a specific definition for a company to be recognized as a “startup.” According to the Department for Promotion of Industry and Internal Trade (DPIIT), a startup is an entity that meets the following criteria:
- Incorporation Age: The entity must be incorporated as a private limited company, a registered partnership firm, or a limited liability partnership (LLP) for less than 10 years from the date of incorporation.
- Annual Turnover: The annual turnover of the entity must not exceed ₹100 crore in any financial year since incorporation.
- Innovation and Scalability: The entity must be working towards innovation, development, or improvement of products, services, or processes, or it must be a scalable business model with a high potential for employment generation or wealth creation.
Once a company is recognized as a startup by DPIIT, it can avail itself of various benefits, including tax exemptions, easier compliance, and access to government schemes.
2. Duration of “Startup” Status
A company is officially recognized as a startup for a period of 10 years from the date of its incorporation. This period was extended from 7 years to 10 years by the government to provide more time for startups to stabilize and grow before they transition to the next phase of their business lifecycle.
3. Eligibility for Funding and Facilities
A startup can apply for various funding opportunities and other facilities provided by the government and private entities throughout its recognized duration. However, to be eligible for certain specific benefits, such as tax exemptions under Section 80-IAC of the Income Tax Act, the startup must be recognized by DPIIT.
4. Financial and Loan Facilities Available for Startups
One of the key challenges faced by startups is access to finance. The Government of India has launched several schemes to provide financial assistance and loans to startups, including Mudra loans. Below are some of the prominent financial and loan facilities available:
a. Mudra Loans (Pradhan Mantri Mudra Yojana – PMMY):
The Pradhan Mantri Mudra Yojana (PMMY) is a flagship scheme launched by the Government of India to provide loans to micro, small, and medium enterprises (MSMEs), including startups. The loans are extended by Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), and Non-Banking Financial Companies (NBFCs).
- Loan Categories: Mudra loans are provided under three categories:
- Shishu: Loans up to ₹50,000 for startups in their initial stages.
- Kishor: Loans ranging from ₹50,001 to ₹5 lakh for businesses looking to expand.
- Tarun: Loans ranging from ₹5,00,001 to ₹10 lakh for well-established businesses needing additional funds.
- Purpose: The loans can be used for various purposes, including business setup, equipment purchase, working capital, and expansion activities.
- Collateral-Free Loans: Mudra loans are generally collateral-free, meaning startups do not need to provide any security or guarantee to avail of the loan.
- Interest Rates: The interest rates on Mudra loans are competitive and are determined by the lending institutions within the guidelines set by the Reserve Bank of India (RBI).
- Repayment Tenure: The repayment tenure of Mudra loans can extend up to 5 years, depending on the category of the loan and the financial institution’s policies.
b. Credit Guarantee Fund for Startups (CGFS):
Under the Credit Guarantee Fund Scheme for Startups (CGSS), the government provides collateral-free loans to startups, with the government guaranteeing up to 80% of the loan amount. This scheme is designed to encourage banks and financial institutions to lend to startups, which often struggle to secure financing due to a lack of assets or established credit history.
c. SIDBI Startup Mitra:
The SIDBI Startup Mitra platform offers various financial products tailored to the needs of startups. It includes venture debt, equity financing, and working capital loans. The platform also connects startups with investors, lenders, and mentors, facilitating easier access to finance.
d. Fund of Funds for Startups (FFS):
The government has established a Fund of Funds for Startups (FFS) with a corpus of ₹10,000 crore. Managed by the Small Industries Development Bank of India (SIDBI), this fund invests in venture capital funds that, in turn, invest in startups. This provides a significant funding source for startups, particularly those in high-risk or innovative sectors.
e. Stand-Up India Scheme:
The Stand-Up India scheme aims to promote entrepreneurship among women and SC/ST entrepreneurs by providing loans between ₹10 lakh and ₹1 crore for setting up a greenfield enterprise in manufacturing, services, or the trading sector. The scheme offers a composite loan, covering both term loans and working capital.
5. Requirements and Maximum Limits of Loan Facilities
To access these financial facilities, startups must fulfill certain requirements:
- Eligibility Criteria: Startups must meet the specific eligibility criteria set by each scheme, which generally includes being recognized by DPIIT, having a viable business plan, and demonstrating the potential for scalability and profitability.
- Documentation: Required documentation may include a business plan, proof of identity and address, financial statements, and project reports, among others.
- Loan Limits: The maximum loan limits vary by scheme:
- Mudra Loans: Up to ₹10 lakh.
- Stand-Up India Scheme: ₹10 lakh to ₹1 crore.
- Credit Guarantee Fund Scheme: Collateral-free loans with an 80% guarantee by the government.
Conclusion
India’s startup ecosystem is thriving, thanks in part to the robust support provided by the government in the form of legal recognition, financial assistance, and loan facilities. The “Startup” status provides companies with access to a wide range of benefits designed to foster growth and innovation. With the availability of schemes like Mudra loans, Credit Guarantee Fund, and the Fund of Funds, startups have the opportunity to secure the funding they need to scale their operations and achieve long-term success.
Entrepreneurs should stay informed about these schemes and leverage them effectively to overcome financial challenges and establish their startups as successful enterprises in the competitive market landscape.
