For any business venture to grow, the primary prerequisite is the availability of capital, i.e., the availability of funds promptly. If companies aren’t getting the proper funds, their growth is slowed. This is a significant obstacle for the vast number of business owners. Many need help to begin their own business, while many start their ventures but quickly find themselves in financial trouble. Additionally, in recent times, it has been difficult for entrepreneurs to get loans from banks for various reasons.
The startup sector, more recently, has received a needed boost from the Government of India with the creation of the Credit Guarantee Scheme for Startups or Credit Guarantee Fund Scheme or CGSS with the contribution of the amount of. 2,000 crores. The scheme is an element of the Startup India action plan initiative and allows startups to obtain the loans they need for their businesses without collateral.
Learn more details about the Credit Guarantee Scheme for Startups (CGSS). What this scheme is all about, its components, the fee structure, the guarantee period, and how it can help entrepreneurs in India.
Highlights of Credit Guarantee Scheme for Startups
- The business must be acknowledged by The Department of Industrial Policy and Promotion (DIPP) to be able to be qualified to receive the guarantee of credit.
- The program will be through portfolios comprising ten start-up loans per financial year.
- The credit guarantee includes additional assistance like working capital and term loans and the venture capital market, debentures, optionally convertible debt, etc.
- As part of the Credit Guarantee Scheme, The loan available for an aspiring startup can be up to Rs. 5 crores, which is open to every eligible startup.
- The coverage of the scheme is as follows. The system will offer credit covering up to 75 percent of the facility, subject to a limit of Rs. 150 Lakhs.
- b. If loans less than Rs. 5 Lakhs are provided to micro-enterprises, this scheme can cover up to 85 percent of credit facilities.
- C. MSMEs owned or operated by women. All loans given to the women-owned or operated businesses in the North-East Region(NER), including Sikkim, could be eligible for up to 80 percent of the loan facility covered under this scheme.
- d. This program will also cover 50 percent of the total credit available for MSME retail business with a maximum of Rs. 50 Lakhs.
Prerequisites of Credit Guarantee Scheme for Startups
- The lending institutions in this scheme could be scheduled financial institutions, commercial banks, or NDFCs registered with RBI and Alternate Investment Funds (AIFs).
- MLIs will provide guaranteed funds of at least Rs. Five hundred lakhs to eligible startups with no security or third-party guarantee.
- Aadhaar is required for all resident partners and directors, and the passport number will be required for directors and non-resident partners to serve the KYC for KYC purposes.
- Following the terms of the management of trusteeship of the National Credit Guarantee Trust Company (NCGTC), CGSS will function.
- Conflicts of interest are subject to investigation to the scrutiny of the Risk Evaluation Committee (REC) that was created to address this issue.
- The credit guarantee Scheme to MSME will be supervised and administered by an MS Management Committee (MS).
Inadmissibility Criteria for Borrowers as well as Lending Institutions under CGSS
- New and existing Small and Medium Enterprises
- Commercial banks that are scheduled (Public Sector Banks, Private Sector Banks, and Foreign Banks)
- Select Regional Rural Banks (which are classified as ‘Sustainable Viable in the category of NABARD)
Certain other financial institutions and banks are considered to be selected by the Govt. of India by the set standards. This includes:
- National Small Industries Corporation (NSIC)
- Andhra Pradesh State Financial Corporation
- Jammu & Kashmir Development Finance Corporation Ltd
- Kerala Financial Corporation
- Tamil Nadu Industrial Investment Corporation Ltd.
- Delhi Financial Corporation
- Export-Import Bank of India
- Small Industries Development Bank of India (SIDBI)
- North Eastern Development Finance Corporation (NEDFI)
Guarantee Period in the CGSS
The guarantee protection in the scheme of credit guarantees for startups will be available for the period agreed upon in the agreement for credit facilities. The guarantee cover will be offered for five years for work capital. The GST rate is 18%. This will apply to banking services and products starting on the 1st of July 1st July 2017.
This article will provide all you should know about this Credit Guarantee Scheme for Startups in India. Credit without collaterals is an immense benefit for entrepreneurs. The biggest obstacle facing entrepreneurs looking to start funding; the proper financing will allow entrepreneurs to grow and transform the Make In India’ into reality.
The more entrepreneurs can turn their dreams into reality, the more employment opportunities and the better the economy. Startups who are eligible to apply for the scheme and use the options offered to them.