Credit Guarantee Scheme for Startups (CGSS)

Securing funding is a major hurdle for startups, especially without collateral. The Credit Guarantee Scheme for Startups (CGSS) helps by offering credit guarantees on loans for DPIIT-recognised startups. This allows access to funds from banks, NBFCs, and other institutions, with a coverage limit of up to ₹20 crore. Supporting various debt instruments, CGSS helps over 1 lakh startups across 763 districts unlock growth opportunities.

The Credit Guarantee Scheme for Startups (CGSS) was introduced by the Government of India to help startups access funding by providing credit guarantees on loans. These loans are offered by scheduled commercial banks, Non-Banking Financial Companies (NBFCs), and Venture Debt Funds (VDFs) under SEBI-registered Alternative Investment Funds (AIFs).

CGSS doesn’t directly guarantee loans to startups but works through the National Credit Guarantee Trustee Company (NCGTC). The NCGTC provides the guarantee coverage to financial institutions that lend to startups, reducing their risk.

The scheme covers various loan types, including venture debt, working capital, and subordinated debt, with enhanced coverage limits. The guarantee can now cover up to ₹20 crore per eligible borrower, enabling startups to secure significant funding without collateral.

The Credit Guarantee Scheme for Startups (CGSS) provides essential financial support, helping startups access loans without the usual collateral requirements. Here are the key features and benefits that make CGSS an invaluable resource for entrepreneurs:

Eligibility Based on Startup Recognition

To qualify for CGSS, startups must be recognised by the Department of Industrial Policy and Promotion (DIPP). This recognition ensures they are eligible for credit guarantees, making it easier to secure funding.

Portfolio-Based Guarantee Coverage

Startups with a portfolio of at least 10 loans within a financial year are eligible for guarantees under CGSS. This structured approach provides added security, encouraging financial institutions to offer loans.

Diverse Funding Options

CGSS supports various funding instruments such as venture capital, term loans, and debentures. This variety allows startups to choose the best financing options based on their unique needs.

High Credit Coverage for Startups

Eligible startups receive up to 75% credit coverage, with a limit of ₹150 Lakhs. This reduces financial risk for lenders, increasing the likelihood of loan approval for startups.

Special Coverage for Micro-Enterprises and Women-Owned MSMEs

Micro-enterprises are eligible for up to 85% credit cover on loans up to ₹5 Lakhs. Women-owned MSMEs in North-East India can receive up to 80% cover, offering enhanced support for these businesses.

Minimal Fees and No Collateral

Startups can access loans without the need for collateral, easing the financial burden. An annual guarantee fee of 2% is charged on the disbursed loan amount, with a reduced fee for female entrepreneurs and North-East businesses.

Flexible Loan Terms

CGSS loans can be short-term or long-term, providing flexibility for startups. This includes options such as working capital loans, convertible debt, and venture capital.

Streamlined Communication for Loan Approval

Startups do not need to interact directly with NCGTC or financial institutions for loan approval. These entities handle all communications, simplifying the loan application process.

Securing funding through the Credit Guarantee Scheme for Startups (CGSS) requires meeting certain eligibility standards, ensuring that only credible startups and financial institutions benefit. Here are the key eligibility criteria for both startups and lending institutions to qualify for the scheme:

For Startups

• Must be recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) as per the latest Gazette Notifications

• Must not be in default to any lending or investing institution and not classified as a Non-Performing Asset (NPA) under RBI guidelines

• Eligibility must be certified by a member institution for the guarantee cover

For Lending and Investing Institutions

• Scheduled Commercial Banks and Financial Institutions

• RBI-registered Non-Banking Financial Companies (NBFCs) with a minimum credit rating of BBB and a net worth of ₹100 crore

• SEBI-registered Alternative Investment Funds (AIFs)

• An NBFC will lose eligibility for additional guarantee coverage if its credit rating drops below BBB, until it is upgraded

To apply for the Credit Guarantee Scheme for Startups (CGSS), ensure you have the following essential documents ready:

• DPIIT certificate and MSME registration proof (if applicable)

• Completed and signed loan application form with all business details

• Recent audited financial statements, including balance sheets, profit and loss statements, and income tax returns

• KYC documents for all directors/partners, including Aadhaar cards, PAN cards, and address proofs

• A detailed business plan with revenue model, forecasts, projected cash flow, and growth plans

• Bank statements for the past 6 to 12 months from the business account

• Identity proof and business address proof of the applicant

• PAN card for both the company and the applicant

• Recent passport-size photographs

To apply for the Credit Guarantee Scheme for Startups (CGSS), follow these simple steps to ensure a smooth application process:

1. Start by registering your business on the Startup India portal and applying for DPIIT recognition

2. Gather all the necessary documents, including your business plan, financial projections, GST registration, PAN card, and KYC details of directors/partners

3. Approach an eligible lending institution, such as a bank, NBFC, or financial institution that is part of the CGSS network

4. Submit your completed loan application along with the required documents to the chosen institution

5. Once your loan is approved, the National Credit Guarantee Trustee Company (NCGTC) will issue a credit guarantee to the lender on your behalf

The Credit Guarantee Scheme for Startups (CGSS) offers essential support for entrepreneurs by providing credit guarantees, enabling DPIIT-recognised startups to access loans without collateral. With coverage of up to ₹20 Crore, CGSS reduces lender risk and makes funding more accessible, allowing founders to secure a business loan even in the early stages of growth. By bridging the credit gap, this scheme helps startups thrive and scale within a competitive market.