How Government Initiatives and Positive Investor Outlook Are Preparing Small Business Financing

February 22, 2021

4 min read

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India is home to more than 55,000 multi-vertical startups and is home to around 37 unicorns, which are among the top five countries with the highest number of unicorns. The impact of the pandemic on the Indian startup ecosystem has been critical and multiple, thus creating a record of bringing 11 startups to the unicorn club, compared to previous years: 9 in 2019 and 8 in 2018. The year 2020 also witnessed a total of $ 8.4 billion of funds raised by Indian startups, at a time when sectors like edtech, healthtech, enterprise / software, and fintech, etc., were booming.

The year 2020 witnessed an increase in the emergence of level II and III city entrepreneurs. While migration to places of origin during the pandemic may have been one of the contributing factors, investors and accelerators had begun expanding their services to more markets to help foster future business. Several Tier II and III city startups are now on investor favorites amid the shutdown.

The pandemic has further strengthened the Internet ecosystem, with online businesses such as reselling, education, cloud kitchens, home cleaning, accounting, and the like emerging on demand. The government, through the Aatmanirbhar Bharat initiative, is working to boost startups and MSMEs to help boost the economy.

Below are some of the government initiatives that will help MSMEs develop their businesses:

Credit support schemes

The government has approved the establishment of The government has also approved the establishment of a 50 billion rupee fund of funds to target high-growth MSMEs with a strong track record and help them go public. In addition, it was recently announced that most startups will be eligible under Aatmanirbhar Bharat Abhiyan’s credit support schemes for additional liquidity and financing for MSMEs.

MSME classification

The definition of an MSME has been revised by the government to include more small businesses in the scope of the category. Not only will this give businesses access to benefits, but it will also help them take advantage of exemptions that can have a huge impact on business operations. These benefits include an exemption from GST registration for companies with an annual turnover of less than INR 40 lakh; and the expansion of the ISO reimbursement scheme for MSMEs.

Memorandum from Udhyog Aadhar

The benefit of registering in this scheme is the ease of making use of government credits, loans and subsidies. Registration can be done both ways in online mode or offline mode. Benefits include exemption from direct and excise taxes, easy loans with low interest rates, loans with credit guarantees, government subsidies, and more. Registered companies are also eligible to receive financial assistance to participate in various foreign exhibitions. These are ideal places to network and display products.

Zero defect, zero effect

This model requires that products manufactured for export adhere to certain fixed standards of quality management and technological tools to ensure that there is no production reject or waste. Registration under this scheme will help MSMEs to recognize and adopt the necessary quality standards along with new technology.

Incubation

This scheme helps innovators with the implementation of new designs, ideas or products. According to this, the government can finance between 75% and 80% of the project cost. This scheme promotes new ideas, designs, products, etc.

Credit-related capital subsidy scheme

This scheme aims to replace old and outdated technology with new and improved ones for businesses. The capital grant is awarded to the company to improve and have better means of doing its business. MSMEs can approach banks directly to take advantage of these subsidies.

Women Entrepreneurship

In order to support women who want to start their own business, the government provides capital, advice, training and delivery techniques to these women to run and expand their business. This scheme comprises initiatives such as the Cent Kalyani and Mudra Yojana scheme that offer multiple benefits to get more women to enter the business ecosystem.

Atal incubation centers

The Government of India has established the Atal Innovation Mission (AIM) at NITI Aayog with the overall purpose of promoting a culture of innovation and entrepreneurship in India. Currently, there are 59 Atal Incubation Centers (AIC) in the country. They have been built to provide comprehensive support to MSMEs, in terms of providing resources and guiding them throughout their initial journey. AIM will provide a grant of up to INR 10 crore for a maximum period of five years to cover capital and operating expenses to establish the AIC.

With the support of various government initiatives and programs from venture capitalists and incubators, businesses can expect the financial backing they need to grow online.

About William G.

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