Credit Guarantee Scheme for Startups: Check Eligibility, Benefits & Registration Process

Its not an easy task to launch a new business from scratch. A huge risk is required to start a business from scratch. There are two main reasons why it is difficult to start a business, one is that insufficient financing as required and the second is a huge risk on banking institution. The Government has come up with a Credit Guarantee Scheme for Startups for providing credit guarantee to loans extended by Member Institutions (MIs). Further in this article we will discuss about this Scheme in details including Key Highlights, Objectives, Benefits & Features, Eligibility Criteria, Eligible Lending Firms, Pre-requisites for CGSS, Registration Procedure for Credit Guarantee Scheme for Startups, etc.

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About Credit Guarantee Scheme for Startups

Department for Promotion of Industry and Internal Trade (DPIIT) has announced the establishment of Credit Guarantee Scheme for Startup (CGSS). It provides the credit guarantees to startups against loans taken from the Member Institutions (MIs) of the scheme. MIs include financial intermediaries (banks, financial institutions and Non-Banking Financial Companies) which are engaged in lending/investing and that are conforming to the eligibility criteria approved under the Scheme. Credit guarantees of up to Rs. 5 Crore will be offered to every eligible case including assistance such as working capital, venture capital, optionally convertible debt, debentures, term loan, etc. This scheme will be offered to provide credit of up to 75% credit which will subject to a limit of Rs. 150 Lakh.

Key Highlights of Credit Guarantee Scheme for Startups

Name of the Article	Credit Guarantee Scheme for Startups
Launched By	Department for Promotion of Industry and Internal Trade (DPIIT)
Objective	To provide the credit guarantees to startups against loans taken from the Member Institutions (MIs)
Beneficiary	Citizens of India
Mode of Registration	Online

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Objectives of Credit Guarantee Scheme for Startups

The objectives of the Credit Guarantee Scheme for Startups are as follows:

• The Credit Guarantee Scheme for Startups (CGSS) is aimed at providing credit guarantee up to a specified limit against loans extended by Member Institutions (MIs).
• The Government of India established the Credit Guarantee Scheme for Startups with a fixed corpus for providing credit guarantees to loans extended to DPIIT recognized startups by Scheduled Commercial Banks, Non-Banking Financial Companies (NBFCs) and Venture Debt Funds (VDFs) under SEBI registered Alternative Investment Funds.
• The scheme has the objective to provide credit guarantee coverage by the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India through National Credit Guarantee Trustee Company Limited (NCGTC) on debt facilities extended by banks to Start-ups recognized by the DPIIT.
• With the objective of mobilizing domestic capital for Indian startups, CGSS will complement the existing Schemes under Startup India initiative viz. Fund of Funds for Startups and Startup India Seed Fund Scheme.

Benefits & Features of Credit Guarantee Scheme for Startups

Here are some benefits & features of Credit Guarantee Scheme for Startups, which are as follows:

• No collateral requirement - The collateral-free CGSS guarantee opens up an easy source of finance for startups. As we know that most startups bootstrap their way towards success. During this period, they face challenges in arranging finance due to insufficient collateral.
• Nominal guarantee fee – The credit guarantee cover is provided against an annual guarantee fee of 2% per annum on the disbursed amount. In case of working capital facilities, it will charged on the sanction amount. In case of female entrepreneurs and units from North-East India, the fee is 1.5%. The MLI may or may not pass on this fee to the borrowing startup.
• Flexible credit facilities - Loans under CGSS can be availed to meet various business needs, whether short-term or long-term. The loans can be in the form of venture debt, term loan, working capital loan, subordinated debt/mezzanine debt, debentures, optionally convertible debt, etc. It can also cover a non-fund-based facility that has become a debt obligation. Further, the credit guarantee may be transaction-based or umbrella-based.
• MI support - The Member Institution applies for the credit guarantee cover against the loan applied by the startup. The eligibility and project feasibility are ensured by the MI. The startup doesn’t need to coordinate between NCGTC and MI for the CGSS loan approval.

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Eligibility Criteria

To avail the benefit under Credit Guarantee Scheme for Startups, you should fulfil these eligibility criteria:

• The borrower should be a startup which is recognized by the DPIIT as per its gazette notification issued from time to time.
• The startup should not have any default credit under any lending or investing institution.
• It should not be classified as a Non-Performing Asset as per RBI guidelines.
• The member institution must certify the eligibility of the applicant.
• The business must be at a stable revenue stage, as assessed from audited monthly statements of 12 months, amenable to debt financing.

Eligible Lending Institutions under CGSS

• Scheduled commercial banks – Public sector banks, private sector banks, foreign banks.
• Certain Regional Rural Banks categorized as ‘Sustainable Viable’ by NABARD.

Certain other financial institutions deemed as chosen by the Government of India as per set criteria. These include:

• Small Industries Development Bank of India (SIDBI)
• Delhi Financial Corporation
• North Eastern Development Finance Corporation (NEDFI)
• Kerala Financial Corporation
• National Small Industries Corporation (NSIC)
• Jammu & Kashmir Development Finance Corporation Ltd
• Tamil Nadu Industrial Investment Corporation Ltd.
• Export Import Bank of India
• Andhra Pradesh State Financial Corporation

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Pre-requisites of Credit Guarantee Scheme for Startups

• For KYC, Aadhaar will be compulsory for all resident partners or directors.
• The passport number will be mandatory for non-resident partners or directors.
• The lending institutions that are members under this scheme may be Alternate Investment Funds (AIFs) or scheduled commercial banks/financial institutions or NDFCs registered with the RBI.
• CGSS will function as per the terms of the trusteeship management of the National Credit Guarantee Trust Company (NCGTC).
• Member lending institutions will offer guarantee amounts of up to Rs. 5 Crore to eligible startups without requiring a third party guarantee or security.
• This Credit Guarantee Scheme for MSME will be monitored and supervised by a Management Committee.
• Conflicts of interest will be addressed and taken up by the Risk Evaluation Committee (REC) to be formed for this purpose.

Registration Procedure for Credit Guarantee Scheme for Startups

All eligible institutions may register itself under the said scheme by submitting a signed undertaking (format given on website) and Board Resolution. Upon successful registration of the Member Institution (MI), login credentials of the MI shall be created where-after it can apply for guarantee cover on NCGTC’s portal. To know more and register as an MI, visit the NCGTC’s portal through https://www.ncgtc.in/en/content/credit-guarantee-scheme-start-ups-cgss.

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