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Government expands Credit Guarantee Scheme to boost startup funding and innovation.

About Credit Guarantee Scheme for Startups (CGSS)

The program is designed to help young, innovative businesses to access loans without requiring collateral (assets to secure the loan).

It was launched in October 2022, under the Startup India initiative (started by Prime Minister Narendra Modi in January 2016).

It encourages banks and financial institutions to lend funds to startups, and cover a portion of the loan if the startup fails to repay. This reduces the risk for lenders, making them more willing to fund new businesses.

The CGSS operates through the National Credit Guarantee Trustee Company Ltd. (NCGTC), which acts as a trustee to manage the guarantees.

Recent Developments

Recently, the Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, announced a major upgrade to the CGSS.

Higher Loan Guarantee Limit

• The government now guarantees loans up to Rs 20 crore per startup, doubling the previous limit of ₹10 crore.  

Better Guarantee Coverage

• For loans up to ₹10 crore, the government covers 85% of the default amount (if the startup can’t repay).
• For loans above ₹10 crore, it covers 75% of the default.
• This increased coverage reduces the risk for lenders, encouraging them to offer bigger loans.

Lower Fees for Champion Sectors

• The Annual Guarantee Fee (AGF), a yearly charge startups pay to benefit from the guarantee, drops from 2% to 1% for startups in 27 “Champion Sectors” under the ‘Make in India’ initiative.
• These sectors, like biotech, renewable energy, and advanced manufacturing, are critical for industrial growth.
• A lower fee makes borrowing cheaper for startups in these areas.

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Source: 

DD NEWS