In what could be seen as an incredible step towards encouraging entrepreneurship and startup culture among the youth of the country, the Department of Industrial Policy and Promotion (DIPP) has decided to move a cabinet note on a credit guarantee fund that will ease the flow of loans to startups.

The fund, that was unveiled by Indian PM Modi as a part of the Startup India action plan in January last year, will be used by the government to stand as a guarantee for loans being handed out to Indian startups.

When it comes to startups in India, capital is one of the hardest hurdles that they have to pass through. The DIPP managed fund has a corpus of a whopping Rs 2,000 crore, which will be put to use to enable greater financial support to all stages startups in the country.

According to a statement given by a senior government official to Economic Times, "We have finalised the details of how the fund has to be managed. A cabinet note will be moved soon."

Startups that have been recognised and certified by the DIPP will only be eligible to access the credit guarantee fund. According to data available, so far, the DIPP has has recognised a total of 2,865 startups, out of which 60 have received a green signal for a tax holiday.

Government certified startups are eligible for an income-tax exemption for three consecutive assessment years in the first seven years of their establishment.

A 'fund of funds’ of Rs 10,000 crore managed by Small Industries Development Bank of India (SIDBI) has already committed Rs 623 crore to alternative investment funds and financed 67 startups till date. The main aim behind the whole fund was to take advantage of the institutional credit structure to reach out to underserved sectors, including women entrepreneurs and SC/ST.

Under the credit guarantee scheme, each startup can get a loan of up to Rs 5 crore without collateral.

For the very first time, the FDI 2017 circular included provisions for startups in sync with the government’s push to startups and entrepreneurship. The circular allows startups to raise money from overseas from venture capital funds and others through instruments such as convertible notes, though Indian startups will still have to seek government approval in sectors where FDI is not under automatic route in order to issue convertible notes.

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