Credit Guarantee Scheme for Startups – Any entrepreneur will tell you that launching a new business from scratch is not an easy undertaking. The lack of sufficient financing when it is needed and the highly risky perspective of the banking institutions on this portion have usually been the two primary reasons why startup companies have found it so hard even to establish a business. Both of these factors have contributed to the difficulty that startups have experienced. The government has made it known that the credit guarantee system for new businesses would allow such businesses to get loans without collateral up to a certain amount. In this essay, we will discuss CGSS in further depth, including its prerequisites, advantages, and eligibility requirements.
Credit Guarantee Scheme for Startups Launched
To start, we will first talk about the body which has the main role behind the Credit Guarantee Scheme. The Ministry of Commerce and Industry in India is in charge of the Department for Promotion of Industry and Internal Trade (DPIIT), which is a federal government agency. It comes up with and puts into action plans for promoting and developing industries, keeping in mind national and socio-economic goals. DPIIT is in charge of the industrial strategy as a whole, while various administrative ministries are in charge of manufacturing, dispersion, growth, making plans, and so on.
DPIIT has announced a credit guarantee scheme for startups that will give them loans without leverage or guarantee. Per their guidelines, any loan or debt facility given to a qualified borrower on or after October 20, 2024, would be covered by the scheme. The central government of India has authorized the “Credit Guarantee Scheme for Startups (CGSS)” to provide assurances on loans issued by participating institutions (MIs) to qualifying borrowers who are startups.
Recognizable startup companies that have reached a secure stream of income, as measured by audited bank statements over a 12-month period, and are able to get debt financing, and startups that are not in default to any lending/investing institution and are not considered non-performing assets by RBI guidelines, are eligible to use this scheme. The most guarantee that can cover a borrower is Rs 10 crore. This cost should not have been covered by any other warranty program.
Money transfer insurance will be 80% of the amount in default if the initial loan approval is up to 3 crores, 75% if it’s beyond 3 crores and up to 5 crores, and 65% if it’s above 5 crores (up to 10 crores per borrower).
Startup India Seed Fund Scheme
CGSS Scheme Objectives
The current programs that are part of the Startup India initiative will be complemented by the Capital Generation Support System (CGSS), which will work toward the goal of increasing the amount of domestic funding available to Indian start-ups. The purpose of the Credit Guarantee Support Scheme (CGSS) is to provide credit guarantees up to a specified limit against loans extended by member institutions to finance eligible borrowers, namely startup companies. This guarantee will be provided against loans granted by the membership to fund eligible borrowers.
Credit Guarantee Scheme for Startups Features and Benefits
- The Startup India program, introduced by the PM, would provide collateral-free financing to companies.
- Participants of this plan will issue a guarantee to DIPP approved companies.
- CGSS will give portfolio-based guarantees for 10+ startup loans each year.
- This scheme offers 75% credit up to Rs.150 lakh.
- Every qualified case will get up to Rs. 5 crores in credit guarantees, including cash flow, venture capital, potentially convertible bonds, long-term debt, etc.
- Up to 85% of microbusinesses’ loan requests under Rs. 5 lakh would be granted.
- Women-owned and NER MSMEs will get up to 80% loans (including Sikkim).
- MSME retail commerce would get a 50% guarantee up to Rs.50 lakh.
Credit Guarantee Scheme for Startups Pre Requisites or Documents
- Most importantly all resident partners or directors must have an Aadhaar card, while non-residents must have a passport number.
- Alternative Investment Funds (AIFs), scheduled commercial banks/financial institutions, or RBI-registered NDFCs may be members.
- CGSS will follow the National Credit Guarantee Trust Company’s trusteeship conditions (NCGTC).
- Members would guarantee up to Rs.500 lakh to qualified entrepreneurs without a third-party guarantee or security.
- A Management Committee will oversee this MSME Credit Guarantee Scheme (MS).
- The Risk Evaluation Committee (REC) will handle conflicts of interest.
Credit Guarantee Scheme Eligible Lending Firms
Banks that are on the Government’s Official List of Commercial Lenders
- Scheduled commercial banks
- Small Industries Development Bank of India
- Export & Import Bank of India
- North Eastern Development Finance Corporation
- Delhi Financial Corporation
- Kerala Financial Corporation
- National Small Industries Corporation
- J&K Development Finance Corporation Ltd
- Tamil Nadu Industrial Investment Corporation Ltd.
- AP State Financial Corporation.
Credit Guarantee Fee Under CGSS
- The total annual guarantee fee is 1.0% per year of the loan amount extended.
- Women-owned businesses, micro-businesses, and NER units will be assessed a 0.75 percent Guarantee Fee on loan amounts up to Rs.5 lakh, and a 0.85 percent Guarantee Fee on credit amounts between Rs.5 and Rs.100 million.