Credit Guarantee Scheme for Startups (CGSS)

The Government of India has introduced the Credit Guarantee Scheme for Startups (CGSS), which offers collateral-free loans. This scheme is specifically designed for startups in India and provides loans of up to ₹10 Crores. 

Registered by the Department of Promotion of Industry and Internal Trade (DPIIT), the scheme is backed by the National Credit Guarantee Trustee Company (NCGTC). Startups often begin from scratch and face challenges in obtaining funding, as most business loans require collateral or income proof. 

This scheme enables access to funds for over 1 Lakh startups across 763 districts. 

One of the most important factors for a startup business to operate and succeed is funding. Without sufficient funds, most startups either diminish or face a lack of capital during their early growth phase. 

Obtaining business loans from banks require proof of income generated from the business, which is often not available for startups. To address this, the government introduced the CGSS, where startups can receive collateral-free loans of up to ₹10 Crores.

The objective of the scheme is to provide funding to eligible startups. Another goal is to offer guaranteed coverage to funding institutions that support eligible startup businesses. 

Under CGSS, startup businesses can receive a maximum credit guarantee cover of ₹10 Crore per borrower. 

• For loans below ₹3 Crores, the credit guarantee cover will be 80% of the loan amount

• For loans between ₹3 Crores and ₹5 Crores, the credit guarantee cover will be 75% of the loan amount

• For loans exceeding ₹5 Crores, the credit guarantee cover will be 65% of the loan amount

The CGSS has a significant impact on Indian startups by offering collateral-free loan guarantees, alleviating financial pressures. Other key impacts include:

• Startup businesses can fund their operations without the burden of collateral

• It reduces risk through transaction-based guarantees for Member Institutions (MIs)

• Schemes like CGSS enable entrepreneurs to enhance innovation, ultimately driving business solutions

• While fostering innovation, the CGSS also contributes to employment generation across the country

• Successful and innovative startups gain popularity rapidly, positively impacting the economy

• This scheme has guaranteed over 260 loans to 209 startups, with 17 of these led by women 

One key feature of the CGSS is that guarantees are provided based on startup portfolios and need to be recognised by the Department of Industrial Policy and Promotion (DIPP). 

• The startup needs to be recognised by the DIPP

• A startup portfolio with at least 10 startup loans for a financial year will be eligible for guarantees

• This scheme includes other assistances such as venture capital, term loans, or debentures, with each eligible startup receiving funding of up to ₹5 Crores

• Credit cover of up to 75% is available, with a limit of ₹150 Lakhs

• For micro-enterprises, credit cover of up to 85% is available for loans up to ₹5 Lakhs

• Women-owned MSMEs in the northeastern region are eligible for credit cover of up to 80%

• MSME retail trade is eligible for credit cover of up to 50%, with a limit of ₹50 Lakhs

This scheme helps businesses access funding without collateral and with minimal fees. Here are some key benefits. 

• CGSS offers easy financing for startups without the need to pledge collateral

• An annual guarantee fee of 2% is charged on the disbursed loan amount for credit guarantee cover

• Annual guarantee fee reduced to 1.5% for female entrepreneurs and businesses from North-East India

• Loans provided under CGSS can be short-term or long-term. These may include venture capital, debentures, term loans, working capital loans, convertible debt, and more

• Startups do not need to directly communicate with NCGTC or MI for loan approval, as these entities handle the communication

The eligibility criteria set for startup businesses and lending institutions differ. Below is a list of the requirements for both types of institutions. 

Some financial institutions chosen by the government of India include:

• Small Industries Development Bank of India (SIDBI)

• Export-Import Bank of India (EXIM)

• National Small Industries Corporation (NSIC)

• North Eastern Development Finance Corporation (NEDFI)

• Delhi Financial Corporation

• Kerala Financial Corporation

• Jammu & Kashmir Development Finance Corporation Ltd

• Tamil Nadu Industrial Investment Corporation Ltd.

• Andhra Pradesh State Financial Corporation

To receive benefits under the CGSS programme, certain documents are required, including KYC documents and business proofs. These include:

• Identity proof

• Business address proof

• Address proof of applicant

• Business proof

• Company and applicant’s PAN Card

• Passport-size photographs recent

• Additional KYC documents as needed 

To apply for the CGSS program as a lending institution, you need to follow the steps online. Here is how:

1. Eligible institutions need to submit a signed undertaking (as per the format provided on the NCGTC website) and a Board Resolution

2. Once the institution is successfully registered, login credentials will be created

3. After registration, the institution can apply for guarantee cover on the NCGTC’s portal

4. To register as a Member Institution (MI), visit the NCGTC's portal for more details

To apply for the scheme as a borrower or startup owner, you need to apply through a registered lending institution

1. Your startup needs to be recognised by eligible institutions such as AIFs and DPIIT

2. Approach the lending institution for funding needs 

3. The institution will evaluate the documents, portfolio, and needs

4. As per general lending protocol and guidelines, the CGSS scheme will work for you