Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE)

Introduction

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGS) was launched by the Government of India (GoI) to make available collateral-free credit to the micro and small enterprise sector. Both the existing and the new enterprises are eligible to be covered under the scheme. The Ministry of Micro, Small and Medium Enterprises, GoI and Small Industries Development Bank of India (SIDBI), established a Trust named Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement the Credit Guarantee Fund Scheme for Micro and Small Enterprises. Eligible Lending Institutions

About the Scheme

Under the scheme, eligible members can get credit facilities from banks to finance medium and small enterprises. Loans up to a maximum of INR 1 crore can be availed, with the differentiating factor being the Credit Guarantee provided by the government.

The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSE unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 / 80/ 85 per cent of the credit facility.

Eligibility

  • Borrower status – Loans under this scheme can be availed by both new and existing borrowers
  • Business plan – A concrete and feasible business plan needs to be in place to avail the loan
  • Registration – The organisation/entity should have registered the business as per existing rules

What’s Available

  • Get Collateral free loans up to Rs.1 crore under CGTMSE scheme
  • Cash credit for meeting working capital finance requirement
  • Term Loan for purchase of commercial assets and business expansion needs

Getting a Businees Loan under CGTMSE

  • Idea generation – The first step towards achieving a dream is to have an idea. Any idea which is feasible and can contribute to the growth of the MSME sector can be the basis for further work
  • Registration – Register a business entity as per existing laws. This can be a partnership firm, a private company, proprietorship, etc
  • Business development plan – A concrete and workable business development plan is required before approaching lending institutions for a loan. This plan should have in-depth information about multiple aspects related to the idea
  • Approach lending organisation – Post the preparation of a business plan one could approach any of the lending organisations associated with this scheme. The banks will process the information and grant a loan under CGTMSE
  • CGTMSE cover – The cover will be availed on paying a certain fee to lending institutions

Fees and Interest rate charged under CGTMSE Scheme

Guarantee fee – Each MLI is expected to pay a guarantee fee to the trust, with this amount depending on the quantum of credit provided. MLIs are expected to pay this fee within a period of 30 days from disbursement of credit. The table below highlights the guarantee fee applicable in different cases.

Amount Sanctioned Guarantee Fee for borrowers from North East Guarantee Fee for Others
0.75% 1% of amount sanctioned
5 lakhs 0.75% 1.5% of amount sanctioned
50 lakhs N/A 1.5% of amount sanctioned

Annual service fee – Each MLI is expected to pay a guarantee fee to the trust, with this amount depending on the quantum of credit provided. MLIs are expected to pay this fee within a period of 30 days from disbursement of credit. The table below highlights the guarantee fee applicable in different cases.

Amount Sanctioned Annual Fee
0.5% amount guaranteed
5 lakhs 0.75% amount guaranteed

Interest rate – Lending institutions can charge an interest rate as their discretion, subject to the condition that this rate falls under RBI guidelines. This interest rate depends on the Prime Lending Rate (PLR) of an institute, with it not exceeding the PLR by over 3%. For example, if the PLR of a bank is 8%, the maximum interest it can charge is (8 + 3) = 12%.

Note: While the interest rate is to be borne by the borrower, MLIs can choose to pay the annual service/guarantee fee through their own funds or pass the fee to borrowers.

Note: The trust can change the annual service fee/guarantee fee at its own discretion and applicants should check prevailing rates at the time of borrowing.

The List of the Member Lending Institution (MLI) / Banks that provide this service please click here.

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