Credit Guarantee
Scheme for Startups (CGSS) cuts Guarantee Fee to 1%
·
Modified Scheme to Boost Startup Credit and
Innovation with Enhanced Guarantee Cover
·
Which increases the ceiling on guarantee
cover per borrower under the Scheme from Rs. 10 crore to Rs. 20 crore.
·
Guarantee cover provided has also been increased
to 85% of the amount in default for loan amount up to Rs. 10 crore and 75% of the
amount in default for loan amount exceeding Rs. 10 crore.
·
Further, the Annual Guarantee Fee (AGF) for
startups in 27 Champion Sectors has been reduced to 1% p.a. from 2% p.a. The Champion
Sectors have been identified by the Government under ‘Make in India’ to provide
a thrust to India’s manufacturing and service capabilities.
·
The broad objective of CGSS is to finance
eligible startups, by enabling collateral free debt funding to startups through
avenues such as working capital, term loans, and venture debt.
The
Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce
and Industry has notified the expansion of the CGSS which increases the ceiling
on guarantee cover per borrower under the Scheme from Rs. 10 crore to Rs. 20 crore.
The extent of guarantee cover provided has also been increased to 85% of the amount
in default for loan amount up to Rs. 10 crore and 75% of the amount in default for
loan amount exceeding Rs. 10 crore.
Further,
the Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been reduced
to 1% p.a. from 2% p.a. The Champion Sectors have been identified by the Government
under ‘Make in India’ to provide a thrust to India’s manufacturing and service capabilities.
The reduction in AGF for Champion Sectors will make funding more attractive for
the identified sectors and boost innovation in domestic manufacturing and self-reliance.
In
line with the vision of the Prime Minister Shri Narendra Modi of transforming India
into an innovation-driven self-reliant economy, the notified expansions aim to address
the financing needs of innovation-driven startups. As a result of the increased
guarantee support and coverage, the number of financial institutions coming forward
to provide credit support to startups shall increase, thereby increasing overall
fund flow for startups.
The
expanded Scheme will further reduce the perceived risks associated with lending
to startups in established financial institutions, enabling greater financial flow
and runway for startups to undertake research and development (R&D), experimentation,
and create cutting-edge innovation and technologies.
Several
operational reforms and other enabling measures identified through consultations
with the startup ecosystem have also been included in the expanded CGSS to make
the Scheme attractive for lenders and startups seeking funding support. The expansions
and modifications are expected to give thrust to the Scheme and enable a wider range
of startups to benefit to propel the country towards becoming a Viksit Bharat.
The
Hon’ble Prime Minister launched the Startup India initiative along with an Action
Plan for Startups on 16th January 2016 to create a vibrant startup ecosystem in
the country. In line with the Action Plan for startups, the Government had approved
and notified the ‘Credit Guarantee Scheme for Startups (CGSS)’ on 6th October 2022
to provide guarantee up to a specified limit against credit instruments extended
to startups by Scheduled Commercial Banks, All India Financial Institutions (AIFI),
Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI)
registered Alternative Investment Funds (AIFs).
The
broad objective of CGSS is to finance eligible startups, by enabling collateral
free debt funding to startups through avenues such as working capital, term loans,
and venture debt. To further catalyse entrepreneurship by providing enhanced credit
support to innovators and encourage financial institutions in the ecosystem to provide
early-stage debt funds to startups, the Union Budget 2025-26 had proposed the enhancement
of credit availability with guarantee cover for startups.