All you need to know on “What is Credit Guarantee Schemes for Startups?”

What is Credit Guarantee Schemes for Startups? And Credit Guarantee Scheme for MSME


The Credit Guarantee Scheme for Startups was recently introduced by the Indian government, giving the start-up sector a much-needed boost. The program is part of India’s Startup Action Plan. It would allow businesses to borrow money without putting up any deposit. In this article information on “What is Credit Guarantee Scheme?”, Benefits of Credit Guarantee Scheme for MSME, and CGTMSE Scheme Eligibility.

What is Credit Guarantee Scheme?

The Government of India (GoI) established the Loans Guarantee Fund Scheme for Micro and Small Enterprises to provide collateral-free credit to the micro and small business sector. The scheme provides coverage to both existing and new enterprises.


The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was established by the Ministry of Micro, Small and Medium Enterprises of the Government of India and the Small Industries Development Bank of India to implement the Credit Guarantee Fund Scheme for MSME.

Benefits of Credit Guarantee Scheme for MSME

  • The guarantee scheme covers credit facilities up to Rs 200 lakh per qualified borrower, both fund and non-fund based (Bank Guarantee, Letters of Credit, etc.), provided they are given on the project viability without collateral security or third party guarantee.

  • The guarantee cover available under the scheme is 50 percent, 75 percent, 80 percent, and 85 percent of the credit facility’s sanctioned amount. For micro firms with financing up to INR five lakh, the guarantee cover is 85 percent. Guarantee coverage is 50 percent of the credit facility’s sanctioned amount for retail trade loan ranging from Rs 10 lakh to Rs 100 lakh per MSE borrower.

  • The guarantee covers (i) all credit/loans in the North East Region (NER) for credit facilities up to Rs 50 lakh; and (ii) all Micro and Small Enterprises operated and/or owned by women. In the event of a default, the Trust pays up to 75% of the amount due under the credit facility issued by the lending institution for credit facilities up to Rs 200 lakh.

Pre-requisite for Credit Guarantee Scheme for Startups

  • The scheme benefits a startup that has been approved by DIPP based on the Gazette Notifications that are issued from time to time.

  • The Aadhaar card would be required for all resident directors/partners, and the passport number would be required for all non-resident directors/partners in accordance with KYC regulations.

  • SEBI registered AIFs, RBI registered Non-Banking Financial Companies (NBFCs), Scheduled Commercial Banks and Financial Institutions, and other MLIs are eligible to participate in the plan.

  • The National Credit Guarantee Trust Company (NCGTC) is in charge of the scheme’s trusteeship management.

  • Instruments for assistance can include venture financing, working capital, debentures, convertible debt, and so on.

  • The Management Committee (MC) would be in charge of the Credit Guarantee Scheme for Startups’ overall oversight and monitoring.

  • To address the conflict of interest, a Risk Evaluation Committee (REC) would be constituted.

CGTMSE Scheme Eligibility Criteria

A credit guarantee, according to the CGTMSE rules, is considered to back a borrower with collateral and a third-party guarantee free advance. Under the scheme, member lending institutions, which can also be NBFCs, that lend to MSME and SME businesses.

  • Borrowers – All the MSME and SME businesses are considered under Borrowers Eligibility Criteria.

  • Lending Institution – Below is the list of the Lending Institutions

    • Non-Banking Financial Institution

    • Public Sector Banks

    • Regional Rural Bank (NABARD must classify the Regional Rural Banks as “Sustainable Viable.”)

    • Small Finance Bank

    • Lending Institution

    • Private Sector Bank

    • Schedule Urban Co-Operatives Banks

Fees under Credit Guarantee Scheme

The credit guarantee plan for startups will provide coverage for the credit facility for the agreed-upon time. For the working capital, a 5-year guarantee will be issued. Below is the table that includes information on the guarantee fees under CGSS.



Guarantee Fee for credit amounts up to Rs. 5 lakh


Composite Annual General Fee

1% of the credit amount per annum.

Guarantee Fee for credit amounts over Rs. 5 lakh and below Rs. 100 lakh



For entrepreneurs, loans with no collateral are a big help. Because finance is the most common barrier for aspiring entrepreneurs, adequate funding can help them thrive and realize the ‘Make in India’ ambition.


The more entrepreneurs who bring their ideas into reality, the more jobs are created, and so the economy grows. Startups that meet the criteria can apply for the program and take advantage of the resources available to them.

Categories: Articles
Zarana Mehta: Zarana Mehta is an MBA in Finance from Gujarat Technology University. Though having a masters degree in Business Administration, her upbeat and optimistic approach for changes led her to pursue her passion i.e. Creative writing. She is currently working as Content Writer at Ebizfiling.
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