Understanding Credit Guarantee Fund Trust for Micro and Small Enterprises (CGMSE)

To encourage small businesses to boom, the Government of India introduced the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGMSE) scheme. The scheme enables eligible borrowers to secure business loans without requiring collateral security, thereby reducing their dependence on assets. Read on to learn how this scheme can help your small business grow.

CGTMSE Loan Scheme: Collateral-free Credit Facilities for MSMEs

SIDBI (Small Industries Development Bank of India), in partnership with the Government of India, introduced CGTMSE. With the help of this program, micro and small companies can avail of collateral-free loans from Indian banks or NBFCs.

It is a major challenge for micro and small businesses to pledge sufficient collateral to obtain loans to support business expansion. Therefore, under this scheme, the Credit Guarantee Fund Trust provides a guarantee cover to member lending institutions against loan default.

This eliminates the requirement for small business owners to pledge separate collateral, such as a house or shop unit. It also reduces lenders' risk and encourages them to extend collateral-free credit to micro and small enterprises, including first-time entrepreneurs.

Things to Know Before Applying for the CGTMSE Loan

Before applying for the CGTMSE scheme, consider the following key points:

• Third-Party Guarantee: Under the CGTMSE scheme, the Credit Guarantee Fund Trust provides a third-party credit guarantee to the lending institution. It is usually a portion of the loan amount, reducing the lender’s risk in the event of default.

• Oversight and Supervision: The CGTMSE scheme is established by the Government of India and SIDBI and operates under their supervision.

• Loan Limit: Micro and small businesses can avail loans under CGTMSE for amounts up to ₹10 Crore (maximum coverage limit), as per prevailing Government of India guidelines.

• Empowering Entrepreneurs: The scheme supports micro and small enterprises, including first-time entrepreneurs. It is improving access to collateral-free credit and fostering business growth.

Eligibility Criteria and Documents Required for CGTMSE Scheme

The following are the eligibility criteria and documents required to avail this credit guarantee facility:

To be eligible for this credit facility scheme, you should be one of the following entities:

• Proprietorships

• Limited Liability Partnerships (LLP)

• Partnership Firms

• Private Limited Companies

Note: An individual cannot apply directly unless registered as one of the above business entities.

To successfully apply for the credit facility under the scheme, you must provide the following necessary documents.

• Business project report or loan proposal

• Business incorporation or registration documents

• KYC documents of the promoter(s)

• Bank statements and financial records, as required by the lender

• Loan sanction letter issued by the lending institution

• Any additional documents requested by the lender based on the borrower’s profile

Charges Associated With CGMSE Scheme

The MSME of India has recently revamped the fee structure of the CGTMSE scheme to boost credit flow and support the growth of new businesses. The revised Annual Guarantee Fee (AGF*) structure, effective from April 1, 2025, is shown in the table below. These charges apply to all guarantees approved or renewed on or after this date.

*AGF will be charged on the guaranteed amount for the first year and on the outstanding amount for the remaining tenure of the credit facility. The standard rate is across all activities, including trading activity.

How to Apply for CGMSE Collateral-Free Loans?

To apply for a loan covered under the CGTMSE scheme, follow these general steps:

Step 1: Formation of Business Entity

Register your business as a Proprietorship, Partnership, LLP, or Private Limited Company. Ensure that all required registrations and approvals are in place before applying for a loan.

Step 2: Prepare a Business Project Report

Create a detailed business plan outlining your business model, projected financials, promoter background, and growth objectives. A well-prepared project report can strengthen your loan application.

Step 3: Secure Approval from a Bank or NBFC

Submit your loan application and project report to a CGTMSE member bank or NBFC. The lending institution will evaluate your proposal and sanction the loan based on its internal credit assessment policies.

Step 4: CGTMSE Credit Guarantee Coverage

After loan sanction, the lending institution applies to CGTMSE for credit guarantee cover. Upon approval, CGTMSE provides a guarantee cover to the lender against default, reducing lender risk. The borrower is required to pay the applicable guarantee and service fees, after which the loan is disbursed as a CGTMSE-covered facility.

Also Read: Importance of MSME Loan for Business Owners

To Conclude

The central government aims to increase the flow of institutional credit in the Indian economy through the CGTMSE scheme. It helps underserved entrepreneurs access finance to fulfil their business aspirations. Under this scheme, small businesses can avail loans for expansion without pledging any collateral. In the long run, the scheme is expected to play a crucial role in enabling entrepreneurial ventures to grow and thrive.

If you plan to expand your business, choosing the right financial institution matters. A Business Loan from Poonawalla Fincorp offers competitive interest rates and minimal documentation. It can provide the best financial support needed to grow your business with confidence.

FAQs

Can I receive a loan amount of ₹15 Crore under the CGTMSE scheme?

No. The CGTMSE provides financial support by offering a maximum coverage limit of ₹10 Crore.

What is the annual CGTMSE fee?

The annual CGTMSE guarantee fee is a percentage of the loan amount. This is to avail and continue the credit guarantee coverage under the scheme.

Can an individual apply for a loan under the CGTMSE scheme?

No, an individual cannot apply directly. They must operate as a recognised micro or small enterprise, such as a sole proprietorship.

Can I apply for a CGTMSE Business Loan if I have an existing loan?

Yes, you can apply for CGTMSE if your existing loan is eligible for the credit guarantee coverage.

Is CGTMSE applicable only to certain sectors?

No, CGTMSE is available for businesses across various sectors, including manufacturing, services, and eligible trading activities.