Credit Guarantee Scheme for Startups:- The Credit Guarantee Scheme for Startups has been made public by the Department for Promotion of Industry and Internal Trade (DPIIT), which offers collateral-free loans. According to the statement, any loans or debt facilities granted to a qualified borrower on or after October 6 will be covered by the program. The DPIIT stated that the “Credit Guarantee Scheme for Startups (CGSS) has been approved by the federal government for the purpose of providing credit guarantees on loans granted by member institutions (MIs) to support eligible borrowers who are startups.
Credit Guarantee Scheme for Startups 2023
For any entrepreneur, getting a startup off the ground is no simple process. The two main reasons why startups have found it so difficult to even open their doors are a lack of enough finance when needed and the banks’ high-risk opinion of this market. The Credit Guarantee Scheme for Startups, also known as the Credit Guarantee Fund Scheme or CGSS, is a special program that the Government of India recently unveiled in an effort to support the startup business.
With a contribution of Rs. 2000 crore, this scheme, which is an offshoot of the Startup India plans unveiled by the Prime Minister, will allow startups to get loans without collateral for launching businesses. Financial intermediaries like banks, financial institutions, NBFCs, and AIFs that participate in lending or investing and meet the qualifying requirements outlined in the plan are considered MIs.
CGSS Scheme Objectives
The goal of the Credit Guarantee Scheme is to establish New India as a popular investment location worldwide and guarantee hassle-free service delivery to the final beneficiary, according to a statement from the organization. Getting permissions and approvals, renewing certificates and licenses, decriminalizing minor offenses, and applying for and paying incentives are some of the major categories. The other areas include filings/returns, audits/inspections, online systems/processes, keeping registers and records, and issues pertaining to procedures/guidelines.
Credit Guarantee Scheme for Startups Features
Some of the key Features of the Credit Guarantee Scheme for Startups are as follows:
- Lending banks that are participants in this program will provide the guarantee to qualified companies that have received Department of Industrial Policy and Promotion (DIPP) recognition.
- This program will be available to grant credit up to 75% credit, subject to a limitation of Rs. 150 lakh.
- Every qualified case would be given credit guarantees of up to Rs. 5 crores, including any assistance provided in the form of working capital, venture capital, optionally convertible debt, debentures, term loans, etc.
- Every included portfolio in the guarantees provided by CGSS will contain ten or more startup loans for the financial year.
- Up to 85% of the sought credit amount may be provided to micro firms requesting loans of less than Rs. 5 lakh.
- For MSME retail trade, a guarantee cover of up to 50% of the sum will be made available, subject to a cap of Rs. 50 lakh.
- MSMEs run or controlled by women and NER will be eligible for up to 80% finance (including Sikkim).
Requirements for Credit Guarantee Scheme for Startups
Some of the Requirements for the Credit Guarantee Scheme for Startups are as follows:
- Aadhaar will be required for KYC for any resident partners or directors, whilst non-resident partners or directors will just be required to provide their passport numbers.
- The lending institutions that are members of this program may be alternate investment funds (AIFs), scheduled commercial banks and financial institutions, or NDFCs registered with the RBI.
- Member lending banks will provide up to Rs. 500 lakh in guarantees to qualified businesses without the need for a third-party guarantee or security.
- A Management Committee will keep track of and oversee this Credit Guarantee Program for MSME (MS).
- CGSS shall operate in accordance with the conditions of the National Credit Guarantee Trust Company’s trusteeship management (NCGTC).
Institutions that can lend money under the Credit Guarantee Scheme for Startups
The Institutions that can lend money under the Credit Guarantee Scheme for Startups (CGSS) are as follows:
- Public sector, private sector, and foreign banks are included in the list of scheduled commercial banks.
- Some regional rural banks that NABARD has classified as “Sustainable Viable”
The Government of India is considered to have chosen a few more financial organizations based on predetermined criteria. These consist of:
- Delhi Financial Corporation
- Small Industries Development Bank of India (SIDBI)
- Jammu & Kashmir Development Finance Corporation Ltd
- North Eastern Development Finance Corporation (NEDFI)
- Kerala Financial Corporation
- Andhra Pradesh State Financial Corporation
- National Small Industries Corporation (NSIC)
- Tamil Nadu Industrial Investment Corporation Ltd.
- Export Import Bank of India
Credit Guarantee Scheme for Startups Guaranteed Fee
- A composite annual guarantee fee of 1.0% of the issued credit amount will be assessed.
- Under this, women-owned businesses, micro-businesses, and NER units will be charged a guarantee fee of 0.75% for lending amounts up to Rs. 5 lakh and 0.85% for credit amounts beyond Rs. 5 lakh but below Rs. 100 lakh (including Sikkim).
CGSS Scheme Guarantee Period
- The guarantee cover under CGSS shall be offered for the duration of the credit facility as negotiated. A five-year block of guarantee coverage is offered for working capital.
- Beginning on July 1, 2017, a GST rate of 18% will be applied on banking services and products.