Credit Guarantee Scheme for Startups (CGSS)

Credit Guarantee Scheme for Startups Latest News

The Centre recently notified an expansion of the Credit Guarantee Scheme for Startups (CGSS).

About Credit Guarantee Scheme for Startups

• The Government of India established the CGSS in 2022 for providing credit guarantees to loans extended by Scheduled Commercial Banks, Non-Banking Financial Companies (NBFCs), and Securities and Exchange Board of India (SEBI)-registered Alternative Investment Funds (AIFs). 
• CGSS is aimed at providing credit guarantees up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers, viz., Startups as defined in the Gazette Notification issued by Department for Promotion of Industry and Internal Trade (DPIIT) and amended from time to time. 
• The National Credit Guarantee Trustee Company Limited (NCGTC) is the implementing agency of the Scheme.
• CGSS does not provide guarantee cover to DPIIT-recognised startups directly, but the Trustee (NCGTC), which in turn provides guarantee cover to Member Institutions (MIs) who provide loans to startups.
• The instruments of assistance would be in the form of venture debt, working capital, subordinated debt/mezzanine debt, debentures, optionally convertible debt and other fund-based as well as non-fund-based facilities, which have crystallised as debt obligations. 
• The credit guarantee cover under the Scheme would be transaction-based and umbrella-based.
  • In transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis. It will promote lending by Banks/ NBFCs to eligible startups.
  • The umbrella-based guarantee cover will provide guarantee to Venture Debt Funds (VDF) registered under AIF regulations of SEBI.
• Recent Changes:
  • The revised framework has enhanced guarantee coverage, increasing the maximum limit from ₹10 crore to ₹20 crore per eligible borrower.
  • The extent of guarantee has also been increased. For loans up to ₹10 crore, the guarantee will now cover 85 percent of the amount in default, while for loans above ₹10 crore, the coverage will be 75 percent.
  • Further, the Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been reduced to 1 percent p.a. from 2 percent p.a.

Credit Guarantee Scheme for Startups FAQs

Q1. What is the credit guarantee scheme for startups?

Ans. It is a financial support initiative launched in 2022 with the goal of improving access to collateral-free loans for DPIIT-recognized startups.

Q2. Which organization is responsible for implementing the CGSS?

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Ans. National Credit Guarantee Trustee Company Ltd. (NCGTC)

Q3. What is the percentage of guarantee cover for loans up to ₹10 crore under CGSS?

Ans. 85%

Source: DDN