What is CGSS Scheme?
The Credit Guarantee Scheme for Startups (CGSS) facilitates credit guarantees for loans provided to startups by Member Institutions (MIs) under the scheme. For eligibility, startups must be registered with the Department for Promotion of Industry and Internal Trade (DPIIT).
Administered through the National Credit Guarantee Trustee Company (NCGTC), the scheme ensures guarantee coverage for MIs extending loans to startups. It offers collateral-free debt funding of up to ₹10 crore, exclusive of any collateral already provided. The CGSS operates under two frameworks: transaction-based and umbrella-based credit guarantee schemes.
The following are the eligibility criteria of CGSS:
- The borrower must be a startup officially recognised by the DPIIT under its current gazette notification.
- The startup should not have any outstanding credit defaults with any financial institution or investor.
- The startup must not be categorised as a Non-Performing Asset (NPA) under RBI guidelines.
- The eligibility of the applicant must be certified by the member institution
- The business should demonstrate stable revenue, as evidenced by audited monthly statements from the past 12 months, conducive to debt financing.
- The startup must fulfil any additional eligibility criteria outlined in the scheme.
Key Benefits & Features of CGSS
No Collateral Requirement: Most startups rely on bootstrapping during their initial phases, often struggling to secure financing due to a lack of sufficient collateral. The CGSS eliminates this barrier by offering a collateral-free credit guarantee, enabling startups to access much-needed funding without the risk of pledging personal or business assets. This provision significantly reduces the financial stress on entrepreneurs, fostering innovation and growth without undue constraints.
Nominal Guarantee Fee: The credit guarantee is available for a modest annual fee of 2% on the disbursed or outstanding loan amount, making it an affordable option for startups. For women entrepreneurs and units from North-East India, the fee is further reduced to 1.5%, promoting inclusivity and regional growth. Importantly, the Member Lending Institution (MLI) has the discretion to absorb this fee, potentially relieving the startup of additional financial burdens.
Flexible Credit Facilities: The CGSS provides startups with versatile loan options tailored to diverse business needs, including short-term working capital, long-term investments, venture debt, and subordinated or mezzanine debt. Startups can also leverage this scheme for hybrid instruments like optionally convertible debentures or for non-fund-based facilities that have converted into debt obligations. This flexibility ensures startups can access the right type of financing at the right time to fuel their growth and operational requirements.
MI support : Member Institutions (MIs) play a pivotal role in ensuring smooth access to CGSS credit guarantees by handling the application process on behalf of startups. They assess the startup’s eligibility and project feasibility, streamlining the approval process and removing the need for direct coordination with the NCGTC. This support allows startups to focus on their business while the MI navigates the complexities of credit guarantee approvals.
More About CGSS
India hosts the world’s third-largest startup ecosystem, with over ₹1.12 lakh startups registered under DPIIT across 763 districts. Many of these startups encounter difficulties in providing collateral for financial assistance.
The startup must approach a financial institution like HDFC Bank to apply for the necessary credit facility under the Startup Credit Guarantee Scheme. HDFC Bank reviews the startup’s eligibility for the scheme and evaluates the feasibility and viability of its project. Concurrently, HDFC Bank submits an application for the guarantee cover through the NCGTC portal. If the startup meets the eligibility criteria, NCGTC provides the guarantee scheme cover.
FAQ:
Startups can apply to member institutions, which include:
- Scheduled commercial banks, like HDFC Bank, and financial institutions that meet the NCGTC criteria
- RBI-registered NBFCs, with a minimum net worth of ₹100 crore. It must have received a credit rating of at least BBB from an RBI-accredited credit rating agency
- SEBI-registered Alternative Investment Fund.