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Startups can borrow ECB upto $3million for more than 3 years
Startups can borrow ECB upto $3million for more than 3 years
RBI has permitted startups to borrow loan under External Commercial Borrowings (ECB). They can borrow upto $3Million every year from residents of countries who are the members of Financial Action Task Force (FATF). The minimum average maturity period of the loan should be 3 years. The borrowings could be in the form of loans or preference shares. The borrower can offer any security/guarantee that is permissible under foreign exchange law.
RBI has permitted the start ups to borrow loan under Excternal Commercial Borrowings. The important points to be remembered in such a case are:
1. The entity should be a recognised startup by the Central Government.
2. The minimum average maturity period should be 3 years.
3. Lender / investor shall be a resident of a country who is either a member of Financial Action Task Force (FATF) or a member of a FATF-Style Regional Bodies.
4. The borrowing can be in the form of loans or non-convertible, optionally convertible or partially convertible preference shares.
5. The loan should be in convertible foreign exchange or Indian Rupees or combination of both.
6. The startup can borrow upto $ 3million, every year.
7.The all-in-costs should be mutually decided by the borrower and the lender.
8. The loan should be used for the business purpose only.
9. The loan could be easily converted into the equity, but RBI/FEMA regulations should be kept in mind.
10. The borrower can offer any security or guarantee, subject to the foreign regulations.
11. The lender can hedge the Rupee portion of debt with any AD1 bank.
12. The market rate existing on the date of agreement should be taken as exchange conversion rate.
13. Other provisions like parking of ECB proceeds, reporting arrangements, powers delegated to AD banks, borrowing by entities under investigation, conversion of ECB into equity will be as included in the ECB framework announced vide A.P. (DIR Series) Circular No. 32 dated November 30, 2015. However, provisions on leverage ratio and ECB liability: Equity ratio will not be applicable.
14. Money should not be borrowed from someone who is resident of a country identified in the public statement of the FATF as:
i. A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measure apply;
OR
ii. A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.
