Credit Guarantee Scheme for Startups (CGSS) – Features and Eligibility

The Credit Guarantee Scheme for Startups (CGSS) is a significant initiative by the Government of India to support emerging businesses. By providing collateral-free loans, the CGSS scheme offers financial assistance to startups, enabling them to overcome funding challenges and realise their entrepreneurial dreams. This scheme plays a pivotal role in promoting innovation and economic growth in India.

This article will explain the key aspects of the CGSS scheme and provide an overview for businesses looking to navigate the details of this initiative. Additionally, it highlights how the Business Loan from Bajaj Finserv can complement the CGSS scheme for comprehensive financial support.

What is Credit Guarantee Scheme for Startups (CGSS)?

In order to venture into any business, the most important factor is capital. Lack of adequate funding is often a hindrance for aspiring entrepreneurs. While some manage to start their businesses, many face a fund crunch soon after. Additionally, obtaining loans from banks has become challenging due to strict requirements.

To address these issues, the Government of India introduced the Credit Guarantee Scheme for Startups with a contribution of Rs. 2000 crore. This scheme is part of the Startup India action plan and enables startups to secure collateral-free loans for their businesses. By doing so, the scheme fosters a favourable environment for innovation and entrepreneurship.

The CGSS scheme is particularly beneficial for startups as it provides financial stability and encourages risk-taking. Startups can now focus on scaling their businesses without the stress of meeting collateral demands from lending institutions.

Features of the Credit Guarantee Scheme for Startups

Here are some noteworthy features of the Credit Guarantee Scheme for Startups:

• Startups must have DIPP Registration (Department for Promotion of Industry and Internal Trade) to qualify for the scheme
• Guarantees are offered on portfolios consisting of at least 10 startup loans for a specific financial year
• The credit guarantee includes other financial assistance such as venture capital, working capital, term loans, and optionally convertible debt, up to Rs. 5 crore for eligible startups

The coverage offered under this scheme includes:

• 75% of the credit facility covered, subject to a ceiling of Rs. 150 lakh
• 85% coverage for loans below Rs. 5 lakh granted to micro-enterprises
• 80% coverage for MSMEs owned by women or located in the North-East Region, including Sikkim
• 50% coverage for MSME retail trade loans, subject to a ceiling of Rs. 50 lakh

These features make the CGSS scheme a robust financial tool for startups looking to establish and expand their businesses.

Pre-requisites of CGSS

The Credit Guarantee Scheme for Startups has specific pre-requisites that startups must meet:

• KYC requirements: Aadhaar is mandatory for resident partners or directors, while passport numbers are compulsory for non-resident partners or directors
• Eligible lending institutions: These include Alternate Investment Funds (AIFs), scheduled commercial banks, financial institutions, or NBFCs registered with the RBI
• Operational guidelines: The scheme functions under the trusteeship management of the National Credit Guarantee Trust Company (NCGTC)
• Guarantee amounts: Member lending institutions provide guarantees of up to Rs. 500 lakh to eligible startups without requiring third-party guarantees or security
• Monitoring and supervision: The scheme for MSMEs is overseen by a Management Committee (MS) and any conflicts of interest are addressed by a dedicated Risk Evaluation Committee (REC)

These prerequisites ensure a transparent and structured implementation of the CGSS scheme, making it reliable for startups seeking financial support.

Documents required to avail credit linked capital subsidy scheme

To benefit from the Credit Linked Capital Subsidy Scheme under CGSS, startups must submit the following documents:

• Identity proof
• Proof of business address
• Address proof of applicants
• Proof of business
• PAN card of the applicant and company
• Recent passport-sized photographs
• Additional KYC documents as required

These documents are essential for verifying the eligibility of the applicants and ensuring a smooth approval process. MSMEs, in particular, can leverage this scheme to enhance their financial stability and operational capacity.

Eligible lending institutions under CGSS

The CGSS scheme supports lending institutions that meet specific eligibility criteria. These institutions include:

• Scheduled commercial banks: Public sector banks, private sector banks, and foreign banks
• Regional rural banks: Categorised as ‘Sustainable Viable’ by NABARD
• Other financial institutions: These include:
• Small Industries Development Bank of India (SIDBI)
• Delhi Financial Corporation
• North Eastern Development Finance Corporation (NEDFI)
• Kerala Financial Corporation
• National Small Industries Corporation (NSIC)
• Jammu & Kashmir Development Finance Corporation Ltd
• Tamil Nadu Industrial Investment Corporation Ltd
• Export Import Bank of India
• Andhra Pradesh State Financial Corporation

By partnering with these institutions, startups can access financial assistance under the CGSS scheme.

Guarantee fee under CGSS

The CGSS scheme involves specific guarantee fees based on the credit amount:

Particulars	Percentage
Composite annual general fee	1% of the credit amount per year
Guarantee fee for credit up to Rs. 5 lakh	0.75%
Guarantee fee for credit over Rs. 5 lakh and below Rs. 100 lakh	0.85%

These fees ensure the smooth functioning of the scheme and provide adequate risk coverage for lending institutions.

Guarantee period under CGSS

The guarantee cover under the CGSS scheme is provided for the duration agreed upon for the credit facility. For working capital, the guarantee cover is valid for a block of 5 years. This ensures sufficient time for startups to utilise the funds effectively and achieve their business objectives.

Conclusion

The Credit Guarantee Scheme for Startups is a game-changer for aspiring entrepreneurs, offering collateral-free loans and financial stability. Startups can leverage this scheme to overcome funding challenges and focus on business growth. For additional financial support, the Bajaj Finserv Business Loan is an excellent option. With quick approvals and flexible repayment options, it complements the CGSS scheme, providing startups with a comprehensive financial solution.

To take advantage of these opportunities, startups must ensure compliance with the prerequisites and documentation requirements. By doing so, they can unlock the full potential of these schemes and achieve their entrepreneurial dreams. Apply today to secure your business’s financial future!