There are quite a few
differences between startups and SMEs. The primary difference is how they are
funded and whom the funds are given too. The guidelines given by the Government
of India determines how the classification between startups and SMEs are done.
Based on these classifications the funding, benefits, and exemptions are also
allocated.
Be it a startup
founder or a small and medium sized business enterprise (SME) owner, often both
experience the same hiccups and growth curves while setting up their business.
In terms of their investment, or the lack of receiving corporate funding the
stories narrated by the founders of a startup or an SME is often quite similar.
While the experience in starting the business might be similar but the process
of the funding mechanism, the journey from the idea of getting the operation
commercial is quite different. Even the customer base for a startup company and
an SME is quite different in most cases. So if someone is deciding to start a
new business under, which category should you be putting it under startup or SME?
The Difference
Between Startup and SMEs
In India, a startup
business has been defined as a registered company/business that has been in
existence for seven years or less. The annual turnover of the business cannot
be more than Rs.25 crore in any of the years since it has been established.
Other important criteria for qualifying as a startup is that the business must
be work for developing and improving products, service or the process of
service. The business should also have a model that has high growth potential
and have the opportunity to generate high employment or accumulate wealth.
Furthermore, the business should be innovative or work towards innovation.
SMEs are defined as
small-scale units with plants and types of machinery that have an investment of
Rs. 1 crore. But it is of utmost importance that the SME meets the condition of
it not being a subsidiary of an industrial undertaking or controlled by it.
This condition is put in place by the Government of India to ensure that the
benefits given to SMEs are not availed by large corporates by setting up small
subsidiaries.
With these
differences between startups and SMEs, there are also a certain set of
different benefits that each offer, based on that too one could decide, which
one to opt for when starting a business.
Benefits of
starting a Startup
Startups are quite
a good economic boost for the Government of India. To ensure the flourishing of
startups along with the Government of India, state and local governments are
providing different benefits to the entrepreneurs and startup companies.
- Registration can be done online by visiting on
StartupIndia website www.startupindia.gov.in
- For startups as venture capital fund
government has set up Rs.10,000 crores.
- First three years the startups get tax exemption.
- Startups are exempted from certain criteria
when applying for government tenders.
- Investors receive a tax exemption on the basis
of venture funds established by the government.
- Registering under startup includes tax
exemption, patent protection and the financial assistance that are more
flexible.
Benefits of SMEs
- Benefits are given to SMEs for manufacturing
certain products. This is for the purpose of creating competition and
employment opportunities.
- 350 items are included under the Government
Purchase Programme for the SME.
- 10 percent space for small-scale units is
allocated and special economic zone (SEZ) is required to follow that.
- There is the MSME Act that offers loans for
upgrading of technology, skill and cluster development, tool rooms,
competitiveness in manufacturing, creating energy efficiency products and
improving product quality.
- Any SME whose post-issue face value is not
more than Rs.25 crores can receive exemption from the government of India.
Also, there are other financial assistance offered to SMEs in relation to
getting loan for their business.
- If one registers under SME one can receive
priority funding under the SME financing, the rate of interest is lower in
such financing and direct tax and excise exemption.
- The Government of India in 2018 also launched
a new portal for helping SMEs with fast-track loans. This would enable the
banks to provide loan approvals to entrepreneurs of Rs 1 crore within an
hour. Also, the entrepreneur would not have to keep visiting branches to
get the small
business loan approval or the amount approved.
With all these
benefits offered to entrepreneurs, there has been a significant rise in MSMEs.
In early 2018 it was reported that over five million MSMEs have accessed formal
credit and from Indian banks have live credit facilities.
Despite the similar
experience that a startup owner and an SME owner might have had, there are quite a lot of differences in how they
operate and how the government helps them out. Depending on those ones can decide
which kind of setup would benefit them the most.
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