Empowering Small Businesses with Easy Financing
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Collateral-free loan with guarantee coverage for micro and small businesses.
CGTMSE is a Government of India scheme launched in the year 2000 in collaboration with the Small Industries Development Bank of India (SIDBI). CGTMSE offers loans to Micro and Small Enterprises (MSEs) without any collateral or third-party guarantee.
CGTMSE provides guarantees to eligible MSEs on loans availed from Member Lending Institutions (MLIs), i.e., public, private and foreign banks and financial institutions. Under the CGTMSE scheme, MSEs have been availing credit guarantees up to a ceiling limit of ₹2 crore. This has been revised to ₹5 crore from April 2023.
Why choose CGTMSE?
Small enterprises own 96% of industrial units in India. They contribute 40% to the country’s industrial production and 42% to exports. Yet, out of 6.3 crore MSMEs in India, only 2.5 crore of them borrow from formal sources. CGTMSE was introduced to bridge this gap and give MSEs increased access to formal sources of finance.
Small businesses face difficulty in arranging finance due to a lack of adequate collateral or third-party guarantees. Many of them resort to informal sources and suffer from exorbitant interest costs and unfair trade practices. This hinders business growth.
By choosing CGTMSE, small businesses can avail of loan facilities without facing any of these borrowing issues and costs. CGTMSE scheme offers working capital solutions and term loans, thus addressing the short and long-term financial needs of a small business.
Benefits of CGTMSE
Some of the key benefits of CGTMSE are:
- No collateral requirement – Providing collateral is difficult for small businesses as most of them have limited or no assets. Loans availed under the CGTMSE scheme are collateral-free.
- Nominal guarantee fee - Loans taken under the CGTMSE charge an annual guarantee fee (AGF). AGF for small ticket loans of up to ₹10 lakh is a nominal fee. The highest AGF is for loans between ₹2-5 crore, charged at 1.35% of the loan amount which may vary from time to time.
- Increased fund availability - Eligible MSEs can borrow loans of up to ₹5 crore through CGTMSE. This can help businesses meet working capital and capital expenditure needs, and support units to invest in technology and infrastructure, and finance their other business expansion plans.
- Easy to apply - CGTMSE has clearly defined guidelines and instructions, which makes it easy for MLIs, such as HDFC Bank, to disburse loans efficiently. The loan process itself is quite simple and easy to apply.
Eligibility criteria for CGTMSE
Following are the CGTMSE scheme eligibility criteria to apply for a loan through the scheme:
- Existing as well as new MSEs engaged in manufacturing, trading or services, excluding agriculture, self-help groups, etc.
- The MLI must assess and adjudge the business as viable and profitable, with a good track record
- The borrower must not be a defaulter with any bank or financial institution
- The criteria for Micro & Small Enterprises are separately mentioned in the MSMED Act, 2006. The eligibility is based on the investment made in equipment, plant and machinery as well as turnover of the entity
Eligible borrowers/businesses can apply for a loan under the CGTMSE scheme by providing the following documents:
- The CGTMSE loan application form
- Proof of business incorporation or company registration certificate
- Passport-sized photo of the applicant
- KYC of the borrower
- Udyam Registration Certificate
FAQs on SME Loan
The MSE unit applying can be a proprietary firm, partnership, LLP, private company or public limited company.
The guarantee cover will commence from the date on which guarantee fee proceeds are credited to bank account of the Trust. Guarantee will commence from guarantee start date and shall run through the agreed tenure of the term loan / composite loans. Where working capital facilities alone are extended to eligible borrowers, it would be for a period of 5 years or block of 5 years on renewal of the guarantee cover, provided MLI pays the Annual Service Fee due as on March 31, latest by within 60 days from the date of demand by CGTMSE or such date as specified by the Trust.
The following credit facilities are not eligible for cover under the CGTMSE scheme:
- Any credit facility, the risk of which is covered by Deposit Insurance and Credit Guarantee Corporation or the RBI
- A credit facility, or part thereof, which is covered by the government or any insurance, guarantee or indemnity business
- Any credit guaranteed by the NCGTC Limited
- A credit not conforming to, or is inconsistent with, any law or guidelines and directives issued by the Central Government or the RBI
- Credit availed under the above points and involves full or partial default
It is an arrangement where the MLI sanctions a portion of the credit facility against a collateral security or third-party guarantee while keeping the remaining portion unsecure. The MLI can cover the unsecured portion under the CGTMSE scheme up to ₹5 crore.
Yes, the guarantee cover available will be restricted to credit of ₹5 crore even though credit extended is more than ₹5 crore to an eligible borrower. In other words, the maximum credit risk borne by CGTMSE is restricted to ₹3.75 crore i.e. 75% of the amount in default.