Unsecured Loan to Startups upto Rs. 10 Crores - Decoding Credit Guarantee Scheme for Start-ups (CGSS)

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  • August 12, 2023
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    Under CGSS scheme, the government aims to provide the said credit guarantee (for startups) to lending institutions including banks, financial institutions, NBFCs and AIFs

The CGSS scheme will provide credit guarantees up to INR 10 Cr against startup loans issued by lending institutions

Introduction

In the dynamic landscape of entrepreneurship, access to funds often spells the difference between a fledgling idea and a thriving business. The Credit Guarantee Scheme for Start-ups (CGSS) emerges as a lifeline for start-ups, offering them a secure path to funding. The Chamber of Indian Startups and MSMEs is excited to delve into the intricate details of CGSS loans, from eligibility criteria to the loan application process and beyond.

 

CGSS Loans: Fueling Start-up Dreams

Understanding CGSS Loans

The Credit Guarantee Scheme for Start-ups (CGSS) loans is a groundbreaking initiative designed to provide financial assistance to start-ups that are recognized under the "Startup India" initiative. This scheme serves as a game-changer, offering a guarantee to banks and financial institutions for loans provided to eligible start-ups.

 

Eligibility Criteria

To be eligible for CGSS loans, start-ups must meet the following criteria:

Recognition: Start-ups need to be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) under the "Startup India" initiative.

Age: The start-up's age, calculated from the date of incorporation or registration, should not exceed 10 years.

Annual Turnover: The annual turnover of the start-up should not surpass a specified threshold amount of Rs. 100 Crores.

Stable Revenue: A Startup should have generated a stable revenue stream over last 12 months, which will be accessed from its monthly financial statements.

Standard Account: A Startup should not be in default with any lending institution and categorised as a Non-Performing Asset (NPA).

Certificate of Lending Institution: A Startup needs to be certified by lending institutions stating that it fully meets the cited eligibility criteria of the Scheme.

 

Loan Application Process

Document Preparation: Gather the necessary documents, including your business plan, financial projections, and relevant legal documents.

Lender Selection: Choose a bank or financial institution that participates in the CGSS program.

Application Submission: Submit your loan application to the chosen lender. Provide comprehensive details about your business, its financial status, and the purpose of the loan.

Evaluation and Approval: The lender evaluates your application based on your creditworthiness, business viability, and adherence to CGSS eligibility criteria.

Loan Amount Determination: The loan amount is typically based on your business needs, repayment capacity, and the lender's policies.

 

Loan Amount and Benefits

CGSS loans offer several advantages to start-ups:

Credit Guarantee: The credit guarantee provided under CGSS ensures that lenders are more willing to extend loans to start-ups.

Collateral Requirements: The credit guarantee often reduces the need for extensive collateral, making loans more accessible. The loan under the CGSS scheme is totally unsecured. The Central Government provide guarantee coverage for startups under CGSS Scheme.

Interest Rates: Start-ups can secure loans at competitive interest rates, enhancing their affordability.

Loan Quantum: The loan quantum varies depending on the lender, the start-up's financial position, and its funding requirements.

Boost to Growth: CGSS loans enable start-ups to expand operations, invest in technology, hire talent, and innovate.

 

Expanding CCGS Coverage Across Lending Institutions

According to recent government notifications, lending institutions now have the opportunity to access guarantee coverage for startup loans under the CCGS Scheme. To participate, lending institutions are required to establish a contractual agreement with the board of the National Credit Guarantee Trustee Company Ltd, which serves as the trustee for the CGSS scheme.

The notification outlines that lending institutions can only secure a guarantee for eligible loans or venture debt facilities if they have formally engaged with the Trustee through an agreement or a specified undertaking. The Trustee (National Credit Guarantee Trustee) will extend two distinct types of guarantee coverage to lending institutions: transaction-based guarantee cover and umbrella-based guarantee cover.

Transaction-Based Guarantee Cover

In the context of transaction-based guarantee cover, lending institutions receive guarantees based on individual loan borrowers, primarily startups. Lending institutions opting for this coverage are required to remit an annual guarantee fee (AGF), set at 2% per annum of the disbursed loan amount, to the Trust.

Umbrella-Based Guarantee Cover

Umbrella-based guarantee cover offers protection to lending institutions across a group of loan borrowers, constituting a cohort of startups. To access this guarantee cover, lending institutions are obligated to pay an annual commitment charge (ACC) equivalent to 0.15% per annum of the proposed investment amount to the CGSS trust.

By providing these comprehensive guarantee cover options, the CCGS scheme enhances its support to lending institutions, allowing them to confidently extend financial assistance to startups while managing associated risks. This dynamic framework encourages collaboration and empowers startups to access crucial funding for their growth.

 

Chamber of Indian Startups and MSMEs: Your Partner in Success

Navigating the CGSS loan landscape can be intricate, and that's where the Chamber of Indian Startups and MSMEs steps in. With its extensive network, the chamber assists start-ups in understanding CGSS loan intricacies, connecting them with participating lenders, and providing vital guidance throughout the application process.

 

Conclusion: Paving the Way for Financial Transformation

Credit Guarantee Scheme for Start-ups (CGSS) loans isn't just about funds; it's about igniting potential, fostering growth, and transforming start-up dreams into realities. With the backing of the Chamber of Indian Startups and MSMEs, aspiring entrepreneurs can confidently step into the world of CGSS loans and secure the financial foundation they need to thrive.

Welcome to a future fueled by innovation and financial empowerment. Welcome to CGSS loans.

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