Roundtable on Debt Financing for Startups

Vigyan Bhawan, New Delhi

A Roundtable was organized by Department of Industrial Policy and Promotion (DIPP) on 24th of August 2018 with a view to identify issues affecting credit flow to Startups. Some of the key stakeholders in attendance included DIPP, Department of Financial Services (DFS), SIDBI, Banks and other lending institutions, Venture Funds, Venture Debt Funds, and Startups. This roundtable was extremely insightful in understanding the issues being faced by the ecosystem in making debt more accessible for startups.

 

 

Some of the notable points taken up in the Roundtable were:

1) Lack of Understanding of Startups by Financial Institutions: 

Startups are disruptive in nature, be it in their product/service, in their business model, or in their operations. Their request for loans is not merely for CAPEX or working capital, it is often for development of digital prototypes, marketing, team hiring, R&D, etc. Banks lack understanding and models to assess such ventures for credit.

2) Assessment of Credit Worthiness of Startups by Financial Institutions:

The current financial rating mechanisms do not offer sufficient insights for supporting startup lending. As a result, lending institutions struggle with assessment of startups for debt financing.

3) Lack of Availability of Tools such as Bill Discounting: 

The lack of availability of startup-focussed tools in the debt financing ecosystem has created specific gaps that are challenging for these companies.

4) Lack of Project-based Financing: 

Startups often face issues in project financing to orders that have already been received from clients. This is due to lack of capital for executing the order, for which investment is often high. This becomes especially problematic when the client is the Government, for which banks often show reluctance to extend credit.

5) Tax Exemptions for SME/Startup Lending

Currently, any lending done to SMEs and startups are taxed normally, leading to lack of incentives for investing in startups.

 

DIPP will be working closely with DFS and other stakeholders to facilitate necessary action on the discussed issues for the improvement of this ecosystem.