How is the Government helping Small Businesses & Startups fight the financial crisis?

COVID 19 is one of the biggest challenges for all businesses, whether it is large scale or small. It has hit the economy badly. Due to various subsequent lockdowns in India, many small businesses and start-ups suffered huge financial losses leading them to fold. It is harder especially for the small business start-ups dealing in non-essential items to manage its operations. The situation for them is becoming worse day by day. The major section affected is street vendors like Momo sellers, a person who is selling earrings on the footpath, life insurance corporation agents, makeup artists, or photographers. The list is unending.

As per the Centre for Monitoring of Indian Economy, the contribution of small businesses and start-ups to the Indian Economy in the last year is $11 billion. The GDP growth and economic success of small businesses and start-ups have made it possible to experience a simplified and easy business set-up, availing of tax benefits, and construction of tinkering labs; it has also raised a funding of Rs 10,000 Crore from the Government for improving the positioning of India and making it a transformed India.

Schemes Launched Before COVID 19

Make in India

To promote the concept of Start-ups and small businesses, the Central Government has come up with the Make in India initiative scheme in 2016. Under this scheme, many of the National Development corporation centres have opened across the country to boost up the importance of MSMEs.

‘Stand up India’

The aim of the Government of India in launching this initiative is boosting up the concept of bank financing for supporting start-ups and creating job opportunities at the ground level for scheduled tribes, scheduled castes, and women. To make all this possible, innovation centres, research parks, and knowledge hubs are created. It facilitates loans starting from 10 Lakh to 1 Crore.

Training and Employment Programs

Apart from these two schemes, the Government of India has also taken the initiative and launched training and employment programs especially for women who are having access to get a formal skill-training facility. It is the case in rural India.

All these schemes were not enough to cope up with the adverse impact of COVID 19 crisis on the Indian Economy. Business owners are not at all able to deal with this situation. Not only one sector, but almost every business sector is dealing with the repercussions of this pandemic. Small businesses and start-ups are dealing with numerous challenges both from operations as well as a business perspective.

How the Government is helping fight the financial crisis post-COVID 19?

Since March 2020, the Indian Government has taken a lot of initiatives for start-ups and small businesses in creating a favourable environment to run business operations smoothly.

Atma Nirbhar Package

The Government has announced Rs 20 -Lakh- Crore Atma Nirbhar Package for supporting the MSME sectors. The package includes giving the provision of immediate working capitals, creation of a dedicated fund approx—rs 10,000 Crore corpus.

New Definition of MSME

The Government had also made changes in the definition of MSME from June 2020. It has increased the limit of the working Capital and companies’ turnover to help them in getting easy loan qualification. The aim is to eliminate the difference between the service sector and the manufacturing sector.

Credit Guarantee Fund Scheme

The Government of India introduced this Scheme for Micro and Small enterprises on August 30, 2020. Through this scheme, GOI is providing collateral-free loans to MSMEs. Both new and existing small businesses or Start-up are eligible to avail benefits from this scheme. The Trust to deliver these loans is formed by the Government of India in collaboration with the Ministry of Micro, Small, and Medium Enterprises, and the Small Development Bank of India. The ratio is 4: 1 of making a corpus contribution by the SIDBI and the Government of India. The credit facility guaranteed for both working capital facility and Term loans is Rs 100 Lakh on each borrowing unit.

Subordinate Debt

The Government of India introduced a scheme known as subordinate debt. Its focus is those MSMEs who declare themselves NPA. The Government decided to give them equity support that means a credit provision worth Rs 20, 000 crore in the form of subordinate debt.

Scheme launched by the Ministry of Corporate Affairs

The Ministry of Corporate Affairs has amended new rules to help start-ups in raising funds in the form of convertible notes and corporate bonds for up to 10 years. Earlier the start-ups were allowed to raise funding up to Rs 25 Lakh only using convertible notes for the tenure of 5 years, but now repayment tenure has increased to 10 years. Considering the global scale of pandemic and economic situations spurred in our country, this amendment comes as a new hope for all the distressed start-ups and small businesses in India.

Self-reliant India Scheme

The Indian MSMEs and other small businesses or start-ups are facing several business challenges from foreign businesses. The Government made an initiative and disallowed global lenders from filing the tender application in Government procurement tenders up to 200 Crores to promote MSMEs and small businesses. It is a great help in achieving the goals of becoming a self-reliant India.

Long Term Repo operations of RBI

The Reserve Bank of India has started Long Term Repo operations worth Rs 10,000 crore to help banks to boost up lending process at an affordable interest rate. It proves to be a great financial help for all the NBFCs and FinTech organisations.

Other measures

Apart from the Government of India, some of the organisations have also taken initiatives to help small businesses and start-ups in tackling the financial crisis. The State bank of India, Government banking sector has started an emergency credit facility focused on MSME borrowers. Under this scheme, the lender can grant a loan up to Rs 200 Crore, or 10% of the present working capital. The rate of interest charged on these loans is 7.25%. Not only SBI, but there are some other Government-run banks also that are offering loans worth Rs 60,000 Crore.

Conclusion

There is no doubt that the Government of India has already taken strong initiatives by launching various schemes and programs to support small businesses or start-ups. At the same time the Government is required to work on increasing revenue collections, more focus to be on capitalising the economy-boosting measures announced by the Government, monitoring the cash flows, and minimising both fixed and variable costs.

FAQs

Q. What is a Start-up India Hub?

Ans: It is one of the top platforms for all the stakeholders belonging to the Start-up ecosystems for connecting or interacting with each other. It is the best way to exchange business knowledge with others and make contributions towards creating a dynamic environment.

Q. How can MSME do its Product marketing?

Ans: Before marketing any of the products or services, it is imperative to conduct a market survey to have a deep understanding of factors like costing, competition level, expectations of your potential customers, and your geographic and demographic location.

Q. What are MSME Loans?

Ans: MSME stands for Micro, Small, and Medium Enterprises. It is also known as SME loans. These loans are designed especially for small business owners, start-up owners, and women entrepreneurs. It comes with the feature of low-interest rates and flexible repayment tenure options. It is an unsecured loan.

Q. What is the validity of the Emergency Line of Credit?

Ans: All those MSME borrowers eligible to get an emergency line of credit can apply for the same only till October 31, 2020.

Q. What packages are introduced for CGTMSE to offer partial support to banks and other financial institutions?

Ans: The financial support offered by CGTMSE is worth Rs 4000 Crore.

Q. What are the documents required to get a successful Mudra Loan?

Ans:

• Duly filled PMMY application form
• Passport size photographs
• Self-written application form
• Identity Proof
• Address Proof
• Age proofs
• Registration certificates
• Latest 6 months bank statements
• Proof of ownership of the office