Updated on: December 17th, 2019 4:57 PM

Credit Guarantee Scheme for Startups (CGSS)

The Government of India has formulated a Credit Guarantee Scheme for Startups (CGSS) with a contribution of Rs. 2000 Crore that enables startups to avail loans without any collateral for their business. The scheme was first proposed by the Prime Minister as a part of the Startup India action plan. The credit guarantee scheme provides portfolio-based guarantees, and each portfolio comprises of at least ten eligible startup loans during a particular financial year. The scheme grants credit guarantee up to Rs. 5 crores per case including the term loan and working capital or any other instrument of assistance. This is extended by a member lending institution to finance an eligible borrower, that is usually a Startup recognised by the Department of Industrial Policy and Promotion (DIPP).

Overview of the Scheme

Credit Guarantee Scheme for Startups is provided to cover up to 75% of the credit facility up to Rs. 150 lakh. The scheme also covers upto 85% of credit facility for loans less than Rs. 5 lakh and offered to micro-enterprises. Further, the scheme covers upto 80% of credit facility for MSMEs that are operated/ owned by women and all loans to NER with the inclusion of Sikkim. For MSME retail trade, the guarantee cover offered is 50% of the amount - to a maximum of Rs. 50 lakh.

Features and Preconditions of CGSS

The essential highlights and pre-requisites for the Credit Guarantee Scheme for Startups is specified below.

• The scheme provides benefit to a Startup that is recognised by DIPP according to the Gazette Notifications that is issued from time to time.
• For all resident Directors/ partners, the Aadhaar card would be made mandatory, and for all non-resident directors/ partners, the passport number would be made as a necessary part as per the KYC norms.
• The Member Lending Institutions (MLIs) under the scheme can be SEBI registered AIFs; RBI registered Non-Banking Financial Companies (NBFCs), Scheduled Commercial banks and Financial Institutions, etc.
• The scheme functions under the trusteeship management of the National Credit Guarantee Trust Company (NCGTC).
• The instruments for assistance can be in the form of venture debt, working capital, debentures, optionally convertible debt, etc.
• MLIs offers loans up to any amount as required by an eligible borrower. Therefore, through this scheme, the exposure to avail credit guarantee would be limited to Rs. 500 lakh per eligible borrower. These loans would be extended by MLIs without any security and third party guarantee.
• The Management Committee (MS) would be made responsible for the overall supervision and monitoring of the Credit Guarantee Scheme for startups.
• A Risk Evaluation Committee (REC) would also be formed to address the conflict of interest.

Commencement of the Scheme

The credit guarantee scheme begins from the date of payment of the guarantee fee and runs through the agreed tenure of the term credit for term loans/ composite loans for five years. During this period, the working capital facilities are extended to the borrowers or for such period as specified by the guarantee trust. Know more about the Credit Linked Capital Subsidy Scheme