Kerala Budget Explained: Startups to benefit from security-free loan

The Kerala government's decision to give loans to startups without asset security is likely to give the sector the much-needed fillip. Kerala Finance Minister Thomas Isaac made the key announcement in his budget speech on Friday.

What are the decisions?

Acknowledging that lack of capital has been a major problem faced by the startups in the state, Isaac announced three decisions to boost the sector. Of these, the most important is the proposal regarding the loan.

Loans without asset security will be availed to the startups that have received work orders from government/semi government or major corporate firms. As per the scheme, 90 per cent of the work orders upto Rs 10 crore will be given for 10% interest.

For those who have received purchase orders, money will be provided after discounting its value. The Kerala Financial Corporation (KFC) and Kerala State Industrial Development Corporation (KSIDC) will pay the amount without collateral security based on the recommendations of an expert panel headed by the IT secretary.

Aid up to Rs 1 crore will be provided for the development of the prototypes of innovative products either needed by government departments or relating to the sustainable development goals of the United Nations. A sum of Rs 10 crore has been allocated to the KFC for this. A sum of Rs 73.50 crore has been allocated for the Kerala Startup Mission for 2020-21.

How statrtups reacted?

Saji Gopinath, CEO, Startup Mission, welcomed the decision to provide security-free loans. “Several startups have received purchase orders, but they don't have the necessary funds. Banks also refuse to give them loans. We had requested the government to address this concern. I think the decision in today's budget is a first of its kind in the country,” he said.

The budget also said that rates for the registration of startups in the state will be revised after proper examination. This is to address the concern that startups in Kerala were forced to spend huge amounts on stamp duty compared to their counterparts in Tamil Nadu and Karnataka. Due to this, many companies have registered their headquarters in Bengaluru or Chennai.

Kerala was ranked first by the union ministry of commerce for promoting startups in 2018. A total of 2300 startups function in Kerala in various sectors, according to the budget document.

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