Identity change: Covid-hit startups look to become MSMEs to benefit from govt’s mega relief package

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Updated: Jun 02, 2020 8:17 PM

Ease of Doing Business: Multiple startups are now preparing to switch as MSMEs to benefit from the economic package announced by the Finance Minister Nirmala Sitharaman last month.

money lessons from Covid-19 crisis, coronavirus, covid-19, loan, emergency fund, health insurance, investment portfolioFinance Minister Nirmala Sitharaman had announced six measures to help MSMEs tide over the financial crunch amid Covid.

Credit and Finance for MSMEs: As Covid pandemic has squeezed the funding pipeline for the Indian startup ecosystem pushing many early-stage startups to halt operations or shut non-core businesses, a host of such companies are now looking to register themselves as MSMEs. Multiple startups, Financial Express Online spoke to, are now preparing to switch as MSMEs to benefit from the economic package announced by the Finance Minister Nirmala Sitharaman last month. Overall, the minister had rolled out six measures to help MSMEs tide over the financial crunch and become more competitive in competing with foreign businesses.

“We had a clear mindset of generating large revenue in the past three months. Now everything has been changed and our business model cycle has been disturbed. We are also facing cash crunch problems like other companies. As the government has launched collateral-free loan opportunities for MSMEs, we are looking forward to registering for the same as we fall in the right eligibility criteria,’ Abhishek Gupta, Founder and Director, OxyGarden told Financial Express Online. OxyGarden makes indoor air sanitizers and was incorporated a few months back.

Delhi-based Incubsence, which makes contactless attendance system for businesses, suffered significantly as the electronics manufacturing came to a standstill during the lockdown. The segment is in direct competition with Chinese manufacturing. The present scenario benefits China more than India as Covid started to impact India at a time when China was about to reopen its economy. Incubsence had to stop its production of contactless attendance device, contactless access control systems etc. “The two months was enough for Chinese companies to sell their products to India since they could meet the demand as Chinese factories gained consciousness,” Diksha Deo, Founder and CEO, Incubsence told Financial Express Online.

Deo said the startup would be applying for MSME registration after an internal discussion in order to secure investment for manufacturing and scaling production. “We can’t let the customer wait for weeks for the order to be delivered. Hence with more capital infusion with the help of the government, we could meet the demand and reduce delivery timeline,” she added. The government on Tuesday had announced multiple schemes to boost electronics manufacturing in India – Production Linked Incentive Scheme, Scheme for Promotion of Manufacturing of Electronics Components and Semiconductors and Modified Electronics Manufacturing Clusters scheme.

Also read: MSMEs call govt’s decision for funding NPA accounts historic; hail approval to revised definition

According to a LocalCircles survey in April, 74 per cent startups and small businesses (out of 13,970 responses) expected shutdown or scaling down of their businesses in the following six months. “Reality is that early-stage startups are very vulnerable. They don’t have cash reserves like large companies. They would not be going to make any projections and so next round of investor will not going to see the potential of the company because the market is gone not just disrupted,” Padmaja Ruparel, Co-founder, Indian Angel Network had told Financial Express Online.

Rs 3 lakh crore of the collateral-free scheme was the highlight of the six announcements made by Sitharaman last month for MSMEs. Eligible MSMEs would have up to Rs 25 crore outstanding and Rs 100 crore turnover to secure an emergency credit line from banks and NBFCs up to 20 per cent of entire outstanding credit as on February 29, 2020. MSMEs would be able to apply for the scheme till October 31, 2020. The government would provide 100 per cent credit guarantee cover to lenders on the principal and interest amount.

Apart from securing easy credit, startups are exploring the MSME route for faster recovery of dues as mandated by Sitharaman in her announcement for MSME buyers to clear dues within 45 days. “The government’s objective is to protect the MSMEs’ interest. Thus it puts an obligation on companies to pay-up all dues to MSME registered vendors within a period of 45 days from date of delivery of goods/services so that MSME vendors do not suffer because of non-payment of dues. This was our primary thought process to get ourselves registered under MSME,” Akhil Aryan, Co-founder and CEO, ION Energy told Financial Express Online. The four-year-old startup develops technologies to improve the life and performance of lithium-ion batteries that power electric vehicles and energy storage systems.

“Access to collateral-free debt capital would be a big boost for startups in this period of uncertainty. Especially during a systemic crisis, the lack of access to its traditional funding pools (venture capital) can push otherwise strong startups to the brink of failure. Access to non-dilutive debt can be a significant lifeline in a period like this,” Utkarsh Sinha, Managing Director, Bexley advisors told Financial Express Online.

Manufacturing or services startups meeting the investment and turnover limits as stated under the revised definition can register themselves as a small business on the Udyog Aadhaar portal with details as per the founder/promoter Aadhaar card. The investment limits for micro, small and medium enterprises are up to Rs 1 crore, Rs 10 crore and Rs 50 crore respectively. For turnover, the limits are up to Rs 5 crore, Rs 50 crore and Rs 250 crore respectively. Besides meeting the two criteria, “the startup is not required to change anything with respect to its business to become an MSME. The whole process doesn’t take over two-three days,” said Gupta.

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