Are you an aspiring businessman struggling to access credit for your MSE due to the lack of collateral or third-party guarantees? Look no further than the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme, which can help turn your entrepreneurial dreams into reality.

Launched by the Ministry of Micro, Small & Medium Enterprises (MSME) and the Government of India, the CGTMSE scheme subsidy guarantees to grant MSEs access credit from formal sources without the need for collaterals or third-party guarantees.

The scheme aims to improve the credit delivery system and ease the flow of credit to the MSE sector. This sector is a critical driver of India’s economy. The logo of CGTMSE displays a colourful flying bird. It signifies the supportive wings of the zeal and drive of zillions of young folks in the country.

They possess bankable business ideas but lack finances and collateral or third-party guarantees. By providing a helping hand in the form of guarantees, CGTMSE enables these aspiring businessmen to set up viable MSEs, transform from job seekers to job providers, and truly contribute to nation-building.

Under the scheme, MSEs can get a business loan of up to ₹200 lakhs that provide a guarantee which will cover the ratio of 50/75/80/85 per cent of the given amount. The scheme also gives special preference to women entrepreneurs and borrowers in the Northeastern States of India, including Sikkim, Jammu, and Kashmir.

What is CGTMSE Scheme?

The CGTMSE scheme aims to check the financial viability of MSE projects and provide term loans and composite credit schemes to eligible MSEs. This is a main source supporting first-generation entrepreneurs who wish to accomplish their dreams.

This blog will delve deeper into the CGTMSE scheme, discussing its benefits, business loan eligibility criteria, and the application process. We will also explore the scheme’s impact on the MSE sector and the Indian economy.

Join us on this journey to explore the transformative potential of the CGTMSE scheme and learn how it can help you give wings to your entrepreneurial dreams. We will guide you through the application process, share success stories of entrepreneurs who have benefited from the scheme, and provide insights on making the most of this opportunity.

Don’t let the lack of collateral or third-party guarantees keep you from realizing your entrepreneurial dreams. With the CGTMSE scheme, you can access the credit you need to set up a viable MSE and make a meaningful contribution to the Indian economy. Let us start.

Key Features of the CGTMSE Scheme

CGTMSE is a scheme that provides credit relief to the MSME sector. The following are the key features that make CGTMSE a viable financial aid option for MSMEs:

1. Eligible sectors: The scheme covers a range of manufacturing and service-based sectors, including retail trade. However, educational and training institutions, self-help groups, and agricultural activities are not eligible for this scheme.

2. No collateral required: With CGTMSE, you do not require any collateral or third-party guarantee to avail of the credit facility.

3. Loan amount: The credit facility provided under the scheme can range up to ₹200 lakhs for MSEs. However, Regional Rural Banks (RRBs) and select financial institutions have a limited credit facility of ₹50 lakhs.

4. Guarantee coverage: CGTMSE provides a guarantee coverage of 75%–85% in case of a default on the principal loan amount. However, this coverage applies only if the principal business loan amount is up to ₹50 lakhs.

By understanding these features, you can determine if the CGTMSE scheme suits your MSME and leverage its benefits to help your business grow.

Benefits of the scheme

1. Improved access to finance: CGTMSE enables MSMEs to get MSME loans from banks and financial institutions without collateral. This improves their access to finance and helps them establish or expand their business.

2. Reduced risk of lending: The credit guarantee cover provided by CGTMSE reduces the lending risk for banks and financial institutions. This encourages them to lend more to MSMEs, which helps create more job opportunities.

3. No requirement for third-party guarantee: With CGTMSE, MSMEs do not require any third-party guarantee to avail of MSME loans from banks and financial institutions. This reduces the burden on MSMEs to provide additional guarantees or securities for loans.

4. Higher loan amounts: Under CGTMSE, MSMEs can avail of higher loan amounts, up to ₹200 lakhs, a substantial amount for small and medium-sized businesses. This helps them to meet their capital requirements and expand their operations.

5. Flexibility: CGTMSE provides MSMEs with repayment flexibility, allowing them to customise business loan repayments based on their business’s cash flow. This helps MSMEs to manage their finances better and reduce the risk of defaulting on their MSME loans.

6. Cover for credit facility: MSMEs can avail of a credit facility cover of up to 75-85% in case of default on the principal loan amount. This helps reduce the lending institutions’ risk and encourages them to lend more to MSMEs.

7. Inclusive to all: All MSMEs engaged in manufacturing and service-based activities, including retail trade, can access the CGTMSE scheme, which does not impose any restrictions on activities. There are no restrictions on the eligible activities for the scheme except for educational and training institutions, self-help groups, and agricultural activities.

CGTMSE Scheme Eligibility Criteria

Under the CGTMSE scheme, lending institutions that lend to the SME and MSME sector are eligible for a maximum credit cap of ₹2 crores. Below are the business loan eligibility criteria for both credit providers and borrowers.

1. Lending Institutions: There are currently 131 Member Lending Institutions (MLIs), which include scheduled commercial banks, specified Regional Rural Banks, SIDBI, NSIC, NEDFi, SFB, and NBFCs. These institutions lend to the specific sector and have entered into the scheme and been designated as eligible for coverage.

2. Borrowers: All new and existing SMEs are eligible for CGTMSE coverage. The maximum credit facility is ₹50 lakhs for a guarantee cover not exceeding ₹62.50 lakhs/₹65 lakhs.

The guarantee cap limits credit facilities above ₹50 lakhs to a maximum of ₹1 crore. Term credit is available for the entire outstanding amount on the date the loan is declared to be an NPA or on the date of filing a suit.

3. Exclusions: The CGTMSE coverage does not apply to entities engaged in retail trade, educational institutions, agriculture, self-help groups (SHGs), or training institutes.

The CGTMSE scheme eligibility criteria for both lenders and borrowers are clearly defined. Lending institutions must be members of the scheme and additionally possess an agreement with CGTMSE or for that matter even the Trust.

SMEs and MSMEs are eligible if they meet certain criteria regarding credit facility amount and the types of activities they engage in. Understanding the business loan eligibility criteria is crucial for both borrowers and lenders to take advantage of the scheme’s benefits.

Necessary Documents for the Registration Process:

To complete the registration process, you must furnish the following information:

Latest Annual Report.
Undertaking that is duly stamped and signed
Compliance proof to the conditions of MLI registration as per applicable guidance. Contact gf@cgtmse.in for more information.

Steps to Avail:

To avail of a business/MSME loan under the CGTMSE scheme, you need to follow the below steps:

Step 1: Incorporate a Business Entity

The first step to applying for a small business loan under the CGTMSE scheme is to incorporate a private limited company, limited liability partnership, one-person company, or proprietorship, depending on the nature of your business. Also, obtain all necessary approvals and tax registrations to execute the project.

Step 2: Prepare a Business Report

To apply for a small business loan under the CGTMSE scheme, you need to conduct a market analysis and prepare a business plan containing relevant information, such as your business model, promoter profile, projected financials, etc. It’s important to ensure that an experienced professional prepares the project report to increase the chances of approval.

Step 3: Get a Business Loan Sanctioned by the Bank

Once you have submitted your business plan and business loan application, banks will analyze the viability of your business model and process your loan application accordingly. After careful consideration, if the bank sanctions the loan, it will provide credit terms and working capital facilities.

Step 4: Obtain Guarantee Cover

After sanctioning the loan, the bank will apply to the CGTMSE authority to obtain the guarantee cover, and if CGTMSE approves the loan, you will need to pay the guarantee fee and service charges. The CGTMSE loan application form is available for download on the official website.

It’s important to note that CGTMSE does not grant any loans, credit facilities, or subsidies. The extended list of Members of Lending Institutions (MLIs) under the CGTMSE scheme contains 141 banks, including all major rural, urban, public sector, and private sector banks of India.

However, CGTMSE does not have any Loan Agents or Agencies for arranging loans or credit guarantees via its MLIs.

CGTMSE Guarantee:

If you are a new or existing micro or small enterprise or a Service Enterprise, you can be eligible for a collateral-free credit facility from eligible institutions. You can avail of credit facilities up to ₹5 crores without the need for collateral or a third-party guarantee.

These credit facilities can be both fund-based and non-fund-based, which means that you can get working capital and other financial support without having to provide any security.

CGTMSE Application:

When eligible credit facilities are sanctioned, you must apply for them.
Ensure that you seek guarantee cover and applicable terms within the accepted norms.
Make sure that the sanctioning of credit facilities occurs latest by the end of the subsequent calendar quarter.
The payment marks the commencement date of the guarantee cover.
The cover will run for the agreed-upon tenure for the Term and Composite Loans.
If you have provided a working capital loan to the borrower, the cover period should be 5 years or any other period specified by CGTMSE.

CGTMSE Coverage Criteria

As a borrower, it’s important to understand the terms and conditions of the guarantee cover offered by the trust. Here are some key points to keep in mind:

The trust guarantees up to 75% of the defaulted principal amount, which can go up to 85% for a select category of borrowers.
The maximum guarantee cap for credit facilities is up to ₹50 lakh is ₹37.50 lakh.
The guarantee cover is applicable for one quarter, including the term credit and interest rate on the principal as well as outstanding capital advances and interest rate on the date the account becomes a Non-Performing Asset (NPA) or on the date of filing the suit, whichever is lower.
Please note that the guarantee does not cover other charges such as penal interest, commitment charges, service charges, or any other levy/expenses.

As a borrower, it’s crucial to carefully read and understand the terms and conditions of the guarantee cover offered by the trust. This will help you make an informed decision and ensure that you have the necessary coverage in case of any default.

Claim Settlement Procedure

As a borrower, it’s important to understand the claim settlement procedure for the CGTMSE guarantee cover. Here are some key points to keep in mind:

The lender can make a preferred claim once they have disbursed the final part of the loan amount, and there is a lock-in period of 18 months. The lender can prefer a claim once the defaulted account has been notified as a Non-Performing Asset (NPA).
The CGTMSE claim settlement procedure is the commencement of recovery proceedings after the account has been classified as an NPA.

It’s important to note that the claim settlement procedure may differ depending on the specifics of the loan agreement and the terms and conditions of the CGTMSE guarantee cover.

As a borrower, it’s crucial to understand your rights and responsibilities in case of default and ensure that you have all the necessary documentation and information to file a claim if required. This can include keeping track of your repayment schedule and ensuring that you are aware of any changes in the terms and conditions of your MSME loan agreement.

By being proactive and informed, you can help ensure that you have the necessary coverage and support in case of any unforeseen circumstances.

CGTMSE Scheme 2023 updates

The Indian government has allotted an extra corpus of ₹9,000 crores in the Union Budget for the financial year 2023-24 for the CGTMSE scheme. The revamp of the scheme aims to guarantee an additional ₹2 lakh crore to MSEs. It also introduces several measures to achieve this goal.

The authorities have lowered the guarantee fees for business loans up to ₹1 crore by 50%, and they have set the minimum guarantee fee at only 0.37% pa The ceiling for guarantee has also been raised from ₹2 crores to ₹5 crores, and the threshold limit for claim clearance without legal action has been increased to ₹10 lakh.

These changes will greatly benefit the MSE sector. It has faced significant issues due to the COVID-19 pandemic. The government’s move to reduce guarantee fees and increase the guarantee ceiling has made it easier for MSEs to access credit and financing. This step is critical for the survival and growth of these enterprises.

The enhanced threshold limit for claim clearance without legal action will protect MSEs against defaulters and help them better manage their finances.

The renewed CGTMSE scheme is a positive step towards supporting the MSE sector, a critical driver of India’s economy. The government’s pledge of support toward these businesses will help them recover from the pandemic’s impact and drive growth and innovation in the future.

CGTMSE Achievements For FY 2022–2023

In the financial year 2022-2023, CGTMSE achieved a significant milestone by approving 11,65,786 proposals, providing much-needed financial assistance to businesses and entrepreneurs.

The approval of total credit guarantees valued at ₹1,047,781 crores indicates a substantial increase in coverage of 87% compared to the previous year. This achievement highlights the effective implementation of CGTMSE’s credit guarantee scheme, which has facilitated easier access to credit for MSMEs, leading to their overall growth and development.

The approval of such a large number of proposals is a testament to the organization’s commitment to supporting small businesses and promoting their role in India’s economic growth.

Why Choose FlexiLoans

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Our USP is the cutting-edge technology that powers our platform, ensuring a seamless experience for our customers. We provide tension-free small business loans without the need for collateral and minimal documentation processes, enabling you to focus on growing your business without the worry of financing.

We utilise proprietary technology that helps to ease any friction points along the way, making the entire MSME loan process hassle-free. FlexiLoans assures you of receiving prompt and reliable support for all your financial needs.

So, why wait? Visit our website at https://flexiloans.com/ today and take your first step towards achieving your entrepreneurial dreams. For similar insights like these, check out more blog posts here.

FAQs

Q.1 Which institutions are eligible to offer MSME loans under this scheme?

A: Scheduled MLIs, including PSUs, private and foreign banks, and select regional and rural banks recommended by the Government of India, can avail of the guarantee cover under the scheme.

Q.2 Can an eligible lender extend only a term loan or working capital facility and still be eligible for the guarantee cover under the scheme?

A: Yes, any eligible lender can extend either a term loan or working capital loan facility alone and still be eligible for the guarantee cover under the scheme.

Q.3 Is IT-PAN mandatory for borrowers to become eligible under the scheme?

A: Yes, borrowers must obtain an IT-PAN before availing facility from the MLI.

Q.4 Is it necessary for the borrower to obtain all credit facilities from a single MLI?

A: Multiple MLIs jointly and/or separately can extend credit facilities to any eligible borrower, with a maximum cap of ₹200 lakhs per borrower.

Q.5 Are small road and water transporters eligible for cover under the CGTMSE scheme?

A: Yes, loans for small road and water transport businesses approved by MLIs are eligible for cover under the CGTMSE scheme.

Q.6 Is the Mudra loan covered under the CGTMSE scheme?

A: No, the CGTMSE scheme does not cover Mudra loans.

Q.7 When can eligible lending institutions apply for guarantee cover under the CGTMSE scheme?

A: Under the CGTMSE scheme, eligible lending institutions can apply for a guarantee cover for the credit proposals sanctioned in a particular quarter before the quarter ends. The four quarters are April-June, July-September, October-December, and January-March.

Q.8 Is co-financing with a commercial bank covered under the CGTMSE scheme?

A: Yes, the CGTMSE scheme can cover joint financing by a financing institution and a commercial bank.

Q.9 What is the lock-in period in CGTMSE?

A: The lock-in period for CGTMSE is 18 months, starting from the disbursal of the final part of the MSME loan amount.

Q.10 Is it possible to pay the annual guarantee fee after the lodgment of the claim, or does it have to be paid prior to the lodgment of the claim?

A: The borrower has the flexibility to pay the annual guarantee fees after the lodgment of the claim, but they must settle the fees in full before the processing of the claim can be. It is prior to the first instalment of 75% of the guaranteed amount. You cannot lodge claims before the expiry of the initial lock-in period or after the expiry of the tenure of the guarantee cover. A CGTMSE fee calculator can be of help here.

Q.11 What risk weight does the credit extended under CGTMSE carry as per the current guidelines?

A. The current guidelines assign a zero risk weight to the credit extended under the CGTMSE scheme.

Q.12 What is the Graded Guarantee Cover provision in CGTMSE?

A. The CGTMSE scheme operates on a portfolio basis and has a provision of Graded Guarantee Cover for sanctioned business loans. It covers the first loss default (up to 5%) for 100%, and the second loss (beyond 5% up to 15%) for 75% of the default portfolio.

Q.13 What is covered under the CGTMSE scheme?

A. You can extend and cover term loans, including loans for small road and water transporters, under the scheme. However, working capital loan facilities, including any outstanding working capital advance (inclusive of interest up to the date of NPA), are not eligible for the guarantee cover.

Q.14 In what circumstances, if any, is it possible to receive a refund of the fees paid for CGTMSE coverage?

A. Within 3 months from the date of receipt of the CGTMSE fee, if a pre-closure or a fee refund request is made and the closure is marked in the CGTMSE system, CGTMSE will permit a refund of a proportionate annual guarantee fee (GF/AGF/ASF).

Q.15 How is the risk premium calculated in CGTMSE?

A. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) applies the standard rate to all its activities, including trading activities. Moreover, micro lending institutions (MLIs) with better portfolio quality receive a 10% discount on the standard rate.

If an MLI has a high-risk profile, the CGTMSE may charge them a maximum risk premium of up to 70% of the standard rate, while applying the standard rate to all activities, including trading activities.

Guide to CGTMSE Scheme: Credit Guarantee Fund Trust for Micro and Small Enterprises

Understanding the CGTMSE Scheme: An Overview