Credit Guarantee Scheme for Startups CGSS

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Credit Guarantee Scheme for Startups CGSS
CGSS - Credit Guarantee Scheme for Startups

What is CGSS Scheme?

The Credit Guarantee Scheme for Startups (CGSS) facilitates credit guarantees for loans provided to startups by Member Institutions (MIs) under the scheme. For eligibility, startups must be registered with the Department for Promotion of Industry and Internal Trade (DPIIT).

Administered through the National Credit Guarantee Trustee Company (NCGTC), the scheme ensures guarantee coverage for MIs extending loans to startups. It offers collateral-free debt funding of up to ₹10 crore, exclusive of any collateral already provided. The CGSS operates under two frameworks: transaction-based and umbrella-based credit guarantee schemes.

CGSS Highlights

Collateral-Free Debt Funding

  • Provides startups with collateral-free loans of up to ₹10 crore for financial support.

Backing by NCGTC

  • Guarantee coverage is offered through the National Credit Guarantee Trustee Company for loans extended by Member Institutions (MIs).

Flexible Guarantee Structures

  • Operates under transaction-based and umbrella-based guarantee frameworks to meet diverse financing needs.

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Wondering if you are eligible?

The following are the eligibility criteria of CGSS:

  • The borrower must be a startup officially recognised by the DPIIT under its current gazette notification.
  • The startup should not have any outstanding credit defaults with any financial institution or investor.
  • The startup must not be categorised as a Non-Performing Asset (NPA) under RBI guidelines.
  • The eligibility of the applicant must be certified by the member institution
  • The business should demonstrate stable revenue, as evidenced by audited monthly statements from the past 12 months, conducive to debt financing.
  • The startup must fulfil any additional eligibility criteria outlined in the scheme.
Credit Guarantee Scheme for Startups CGSS

Key Benefits & Features of CGSS

No Collateral Requirement

  • Most startups rely on bootstrapping during their initial phases, often struggling to secure financing due to a lack of sufficient collateral. The CGSS eliminates this barrier by offering a collateral-free credit guarantee, enabling startups to access much-needed funding without the risk of pledging personal or business assets. This provision significantly reduces the financial stress on entrepreneurs, fostering innovation and growth without undue constraints.

No need for collateral

Nominal Guarantee Fee

  • The credit guarantee is available for a modest annual fee of 2% on the disbursed or outstanding loan amount, making it an affordable option for startups. For women entrepreneurs and units from North-East India, the fee is further reduced to 1.5%, promoting inclusivity and regional growth. Importantly, the Member Lending Institution (MLI) has the discretion to absorb this fee, potentially relieving the startup of additional financial burdens.

Nominal guarantee fee

Flexible Credit Facilities

  • The CGSS provides startups with versatile loan options tailored to diverse business needs, including short-term working capital, long-term investments, venture debt, and subordinated or mezzanine debt. Startups can also leverage this scheme for hybrid instruments like optionally convertible debentures or for non-fund-based facilities that have converted into debt obligations. This flexibility ensures startups can access the right type of financing at the right time to fuel their growth and operational requirements.

Flexible credit facilities

MI support 

  • Member Institutions (MIs) play a pivotal role in ensuring smooth access to CGSS credit guarantees by handling the application process on behalf of startups. They assess the startup's eligibility and project feasibility, streamlining the approval process and removing the need for direct coordination with the NCGTC. This support allows startups to focus on their business while the MI navigates the complexities of credit guarantee approvals.

MI support 

Most Important Terms & Conditions

  • *The Most Important Terms and Conditions for each of our banking offerings features all the specific terms and conditions that govern their use. You must go through it thoroughly to fully understand the terms and conditions applicable to any banking product you choose. 

MI support 

More About CGSS

India hosts the world's third-largest startup ecosystem, with over ₹1.12 lakh startups registered under DPIIT across 763 districts. Many of these startups encounter difficulties in providing collateral for financial assistance.

The startup must approach a financial institution like HDFC Bank to apply for the necessary credit facility under the Startup Credit Guarantee Scheme. HDFC Bank reviews the startup's eligibility for the scheme and evaluates the feasibility and viability of its project. Concurrently, HDFC Bank submits an application for the guarantee cover through the NCGTC portal. If the startup meets the eligibility criteria, NCGTC provides the guarantee scheme cover.

No Collateral Requirement

  • Many startups bootstrap their way to success, facing challenges in securing finance due to a lack of collateral. The collateral-free CGSS guarantee provides an accessible financing option for startups. 
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Affordable guarantee fee

  • The annual fee for the credit guarantee cover is set at 2% of the disbursed or outstanding amount. For working capital facilities, fees are based on the sanctioned amount. However, female entrepreneurs and businesses located in the North-East region qualify for a reduced fee of 1.5%. The Microfinance Lending Institution (MLI) may choose to pass this fee on to the borrowing startup or cover it themselves. 
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Flexible credit facilities

  • CGSS Loans address diverse business needs, whether be it short-term or long-term. Some options include venture debt, term loans, working capital loans, subordinated or mezzanine debt, debentures, optionally convertible debt, and non-fund-based facilities that convert into debt obligations. Credit guarantees can be categorised as either transaction-based or umbrella-based. 
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MI Support

  • The member institution applies for the credit guarantee cover on behalf of the startup's loan application, verifying the startup’s eligibility and project feasibility.   
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To qualify for the Credit Guarantee Cover:

The borrower must be a startup officially recognized by the DPIIT as per its current gazette notification.

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The startup should have no outstanding credit defaults with any financial institution or investor and must not be classified as a Non-Performing Asset (NPA) according to RBI guidelines.

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The member institution must certify the applicant's eligibility.

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The business should show stable revenue that supports debt financing, demonstrated by audited monthly financial statements for the past 12 months.

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The startup also must meet any other eligibility criteria specified in the scheme.

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Frequently Asked Questions

Startups can apply to member institutions, which include: 

  • Scheduled commercial banks, like HDFC Bank, and financial institutions that meet the NCGTC criteria 

  • RBI-registered NBFCs, with a minimum net worth of ₹100 crore. It must have received a credit rating of at least BBB from an RBI-accredited credit rating agency 

  • SEBI-registered Alternative Investment Fund.

There are 11 public sector banks and seven private banks, including HDFC Bank, three NBFCs, and one foreign bank, small-finance bank, AIF and financial institution each.

For transaction-based guarantee cover, the guarantee cover starts from the guarantee fee payment date through the tenure of the loan. For umbrella-based guarantee cover, the cover starts from the date of payment of the commitment charges through the life cycle of the venture debt fund. 

Yes, existing loans covered under CGSS can be enhanced in terms of credit facility. However, the maximum guarantee cover is restricted to ₹10 crore per borrower. 

Holding and subsidiary companies are not eligible. An eligible startup gets derecognised if it becomes a holding or subsidiary company. This also goes for joint ventures, entities incorporated outside India and businesses where 51% or more is not held by Indian promoters under the Companies Act, 2013 and SEBI Regulations, 2018.