Comprehensive Guide to CGSS
What is CGSS?
CGSS, or Credit Guarantee Startup Scheme, is a financial initiative designed to support startups by
providing collateral-free loans of up to ₹10 crore. The scheme, implemented through the National
Credit Guarantee Trustee Company (NCGTC), aims to encourage entrepreneurship and innovation by
reducing the financial burden on startups. It offers both transaction-based and umbrella-based credit
guarantees to member institutions (MIs) that provide loans to startups recognized by the Department
of Promotion of Industry and Internal Trade (DPIIT).
Websites for CGSS:
1. Credit Guarantee Scheme for Startups
2. NCGTC Products
Why Choose CGSS and How?
India has over 1.12 lakh DPIIT-registered startups across 763 districts, making it the 3rd largest
startup ecosystem globally. Most startups face challenges in arranging financing due to insufficient
collateral, making CGSS an essential financial support system.
To apply for CGSS:
1. The startup needs to approach a member institution like HDFC Bank and seek the required credit
facility under the CGSS.
2. The member institutions check the startup’s eligibility and assess the project’s feasibility.
3. The member institution applies for the guarantee cover through the NCGTC portal.
4. Upon meeting eligibility parameters, NCGTC issues the guarantee scheme cover.
Benefits of CGSS
The Credit Guarantee Scheme for startups offers the following benefits:
1. No Collateral Requirement: Facilitates financing for startups that lack sufficient assets.
2. Nominal Guarantee Fee: Annual fee of 2% on the disbursed or outstanding loan amount, reduced
to 1.5% for female entrepreneurs and units from North-East India.
3. Flexible Credit Facilities: Supports diverse funding needs, including venture debt, term loans,
working capital, and more.
4. Member Institutions Support: The MI handles the credit guarantee cover application, simplifying
the process for startups.
Eligibility Criteria for CGSS
To avail of the CGSS facility, startups must fulfill the following criteria:
1. Recognized by DPIIT as per the latest gazette notification.
2. No default credit under any lending or investing institution.
3. Not classified as a non-performing asset as per RBI guidelines.
4. Eligibility certification by the member institutions.
5. Demonstrated stable revenue, supported by 12 months of audited financial statements.
6. Compliance with any other criteria prescribed under the scheme.
Where Can Startups Apply for CGSS?
Startups can approach the following institutions for CGSS:
1. Scheduled Commercial Banks: Such as HDFC Bank and other financial institutions meeting
NCGTC criteria.
2. RBI-Registered NBFCs: With a minimum net worth of ₹100 crore and a credit rating of at least
BBB.
3. SEBI-Registered Alternative Investment Funds: Details available on the NCGTC website.
https://www.ncgtc.in/content/products/0/17006363171417950464.pdf
What is the tenure of the guarantee scheme cover?
1. Transaction-Based Guarantee Cover: Valid from the date of guarantee fee payment through the
loan tenure.
2. Umbrella-Based Guarantee Cover: Valid from the payment date of commitment charges through
the venture debt fund’s lifecycle.
Can Existing Loans Covered Under CGSS Be Enhanced?
Yes, existing loans under CGSS can be enhanced within the maximum guarantee cover limit of ₹10
crore per borrower, provided the startup demonstrates financial stability and repayment capacity.
What Is the Extent of the Loan in the Scheme?
The loan amount covered under CGSS depends on the type of guarantee:
1. Transaction-Based Guarantee Cover (Banks/FIs/NBFCs):
- Up to 80% of the amount in default for loans ≤ ₹3 crore.
- Up to 75% of the amount in default for loans between ₹3 crore and ₹5 crore.
- Up to 65% of the amount in default for loans > ₹5 crore.
2. Umbrella-Based Guarantee Cover (SEBI-Registered AIFs):
- Actual losses or up to 5% of pooled investment, whichever is lower, subject to a maximum of ₹10
crore.
Losses include principal investments of written-off assets and three months’ accrued interest from the
default date.
What Is the Effect of Takeovers and Foreign Holdings Under CGSS?
1. Takeovers: If a startup becomes a holding or subsidiary company, it loses eligibility under CGSS.
2. Foreign Holdings: Startups with 51% or more foreign equity are ineligible, ensuring majority
Indian ownership under the Companies Act, 2013, and SEBI Regulations, 2018.
How Can Startups Benefit From CGSS?
Startups can leverage CGSS to:
1. Secure Initial Funding: Obtain working capital or seed funding.
2. Expand Operations: Scale production or enter new markets.
3. Invest in Innovation: Fund R&D projects.
4. Reduce Financial Burden: Avoid high-cost loans or equity dilution.
Why is CGSS Better Than Traditional Business Loans?
1. No Collateral Requirement: Removes the need for asset pledging.
2. Government-Backed Support: Ensures lower risk for lenders and easier access to funds.
3. Affordable Interest Rates: Lower costs compared to traditional loans.
4. Startup-Focused: Tailored specifically for startup challenges.
5. Simplified Application: Streamlined process ensures faster approvals.
