The Government of India has notified the expansion of the Credit Guarantee Scheme for Startups (CGSS) to enhance capital access and boost innovation-driven entrepreneurship.

About Credit Guarantee Scheme for Startups (CGSS)

• CGSS is a government-backed scheme providing collateral-free credit guarantees to promote funding for eligible, innovation-driven startups.
• Launch: It was approved  in 2022 under the Startup India initiative which was launched on 16th January 2016.
• Nodal Ministry: Ministry of Commerce and Industry
• Primary Objective: The scheme aims to facilitate collateral-free debt funding for eligible startups, enabling them to access credit through working capital loans, term loans, and venture debt.
  • CGSS provides guarantee cover to DPIIT recognised startups through a trustee, National Credit Guarantee Trustee Company Ltd, which in turn provides guarantee cover to MIs who provide loans to startups.
• Lending Ecosystem: Credit under the scheme is extended by Scheduled Commercial Banks, All India Financial Institutions (AIFIs), Non-Banking Financial Companies (NBFCs), and SEBI-registered Alternative Investment Funds (AIFs).
• Focus on Early-Stage Startups: CGSS is designed to catalyse entrepreneurship by supporting early-stage and innovation-driven startups, encouraging financial institutions to offer credit despite perceived risks.

Key Features of the Expansion

• Increased Guarantee Cover Limit: The maximum guarantee cover per borrower has been doubled from ₹10 crore to ₹20 crore.
• Higher Guarantee Coverage Rates: For loans up to ₹10 crore, the scheme now covers 85% of the amount in default (earlier lower) and for loans above ₹10 crore, the guarantee coverage is now 75%.
• Reduced Annual Guarantee Fee (AGF): For startups in the 27 Champion Sectors identified under ‘Make in India’, the AGF has been reduced to 1% per annum, down from 2% per annum, making credit more affordable and attractive to startups in strategic sectors like manufacturing and services.