POST DIWALI CELEBRATIONS FOR STARTUPS…

OVERVIEW:

The Reserve Bank of India (RBI) announced in a statement (Fourth Bi-monthly Monetary Policy Statement for the year 2016-17 released on October 04, 2016) separate from the monetary policy review that it would allow start-ups to access foreign currency loans of up to $3 million a year under the external commercial borrowing (ECB) route. Start-ups will be allowed to raise up to $3 million either in rupees or in any convertible foreign currency or a combination of both, said the statement.

According to the Economic Survey 2016, India boasts 19000 plus startups. The news of the ECB route came as a post Diwali present for the startups carving the way into better and bigger investment avenues.

The government had, earlier this year, introduced incentives for early-stage companies, including an income tax holiday, an inspector-raj-free regime and capital gains tax exemptions on investments in start-ups. The government had also put in place a Rs.10,000 crore corpus to provide funding for these startups..

In June,the Securities and Exchange Board of India had introducedeasier regulations for start-ups forraising funds from the equity markets.

TREAD CAREFULLY..

• Equity conversion is permitted subject to adherence of applicable regulations and compliance pertaining to foreign investment in Startups.
• The collateral can be mutually decided between the lender and the borrower subject to compliance with the FDI norms and regulations in this regard.
• Only Startups falling within the meaning hereinafter mentioned shall be able to reap the benefits of the offer: “An entity recognised as a “Startup” by the Central Government as on the date the firm wishes to raise ECBs”
• The lender shall necessarily be a resident of a foreign country which is a member of the FATF (Financial Action Task Force) or a member of a FATFStyle Regional Bodies. Overseas branches/subsidiaries of Indian banks and overseas wholly owned subsidiary / joint venture of an Indian company shall be excluded from the purview of these provisions as being an eligible lender.
• The procurement limit set in by the government stands at $3 million or equivalent per financial year (in INR or any or in any convertible foreign currency or a combination of both). The minimum payback period stands at 3 years.
• Guarantees, either personal or corporate can be provided, but shall in no form shall be guarantees by any Indian banks, all India financial institutions and NBFCs.
• The conversion rates (if borrowings procured in INR) shall be applicable as per the prevailing market rates as on the date of signing the agreement.