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There are stringent rules in place for businesses to qualify as MSMEs, which include revenue and investment parameters (Sai Sen/Mint)
There are stringent rules in place for businesses to qualify as MSMEs, which include revenue and investment parameters (Sai Sen/Mint)

Short of funds, startups line up to register as MSMEs for govt sops

The govt has rolled out various schemes for MSMEs and is giving them access to credit amid a liquidity squeeze

Shashank Moddhia, chief executive of The Renal Project, a startup that runs a chain of dialysis centres in the suburbs of Mumbai and Pune, is working overtime to get a micro, small and medium enterprise (MSME) registration for his business since the government announced a special package for small businesses impacted by the covid-19 outbreak.

“We need to ensure we have access to funds. We have applied for the MSME registration so that we can avail collateral-free loans at a time when it is even more critical for us to obtain expensive medical equipment to keep the centres running," said Moddhia.

As financial distress of businesses across sectors continues to rise, many startups such as Moddhia’s are lining up to register as MSMEs as traditional sources of funding dry up. The government has introduced various schemes to address the financial crisis faced by MSMEs, by giving them access to credit amid a squeeze on liquidity. “With the Atmanirbhar package, MSME registration for many startups has almost become a necessity which apart from providing easier access to liquidity also allows benefits from measures such as MSME incubators," said Sanjay Mehta, founder and partner 100X.VC, an early stage VC and board member, TiE Mumbai, which has started programmes to guide startups to register as MSMEs.

There are stringent rules in place for businesses to qualify as MSMEs, which include revenue and investment parameters. Industry experts said that while registering as MSMEs may not be a lasting solution for most startups, it will nonetheless help them tide over the current crisis. “Startups cannot be classified as MSMEs lifelong, but it would be in the interest of companies to register, keeping in mind the status can change over time," said Anil Joshi, managing partner, Unicorn India Ventures, another early-stage tech-focused VC.

The government has also approved the creation of a 50,000-crore fund of funds to help select high-growth MSMEs with a good track record, and help them list on the exchanges. Commerce minister Piyush Goyal said recently that most startups will be eligible for additional liquidity and funding under the credit support schemes for MSMEs under the Aatmanirbhar Bharat Abhiyan package.

However, not all venture capital firms are finding it crucial for their investee companies to register themselves as MSMEs. Mohit Gulati, managing general partner, ITI Growth Opportunities Venture Fund, said startups that are institutionally funded were told in advance to conserve capital and were also helped with reserves to last up to a year. It is the non-funded companies that are more likely to register at present for the lack of backing, he said.

“Registering startups as MSMEs can really hurt small-micro entrepreneurs because they compete with much larger businesses for the same bank loans. We don’t encourage our startups for MSME registrations even if they are in a position to do so, including those in manufacturing space," said Gulati.

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