The non-availability of adequate funds for businesses at a reasonable interest rate is one of the most important problems faced by the Micro and small enterprise sector (MSME). There are several government loan schemes made available for MSMEs. The Credit Guarantee Fund Trust Scheme for Micro and Small Enterprises (CGSTMSE) is a collateral-free credit scheme launched by the Indian Government for the micro and small enterprise sector. Both the existing and new enterprises that are in manufacturing or service activities, excluding retail trade, agriculture, self-help groups (SHGs), training institutions, etc. can apply for CGS.
Benefits of Credit Guarantee Scheme
- MSMEs can avail Fund and non-fund based (Letters of Credit, Bank Guarantee etc.) credit facilities of up to Rs 200 lakh under the credit guarantee scheme
- The scheme is extended based on the project viability without any requirement of collateral security or third party guarantee.
- Under the scheme CGS cover is to the extent of 50%/ 75% / 80% & 85% of the sanctioned amount of the credit facility
- For micro enterprises, the extent of guarantee cover is 85% for credit up to Rs 5 lakh. A guarantee cover of up to 50% is available on the credit facility for credit ranging between Rs 10 lakh to Rs 100 lakh per MSME borrower.
- The guarantee scheme covers Micro and Small Enterprises operated and/or owned by women business owners; and all credits/loans in the North East Region (NER) for credit facilities of up to Rs 50 lakh.
- In case of loan default, the trust settles the claim of up to 75% of the default amount of the extended credit facilities of upto Rs. 200 lakh by the lending institution.
Eligible Credit Facility
- Both term loans and working capital facility of up to Rs.100 lakh per borrowing unit are eligible for the credit facility
- The loan is made available without any requirement of collateral security and / or third party guarantee, to a new or existing micro and small enterprise.
- Units covered under the CGSTMSE, which may become sick in cases where the reason is beyond the control of management, rehabilitation assistance extended by the lender are eligible under the scheme.
- Any credit facility operated by Government or other agencies in respect of which risks are additionally covered are not eligible for coverage under the CGTMSE scheme.
Eligibility for CGTMSE Scheme
Here’s a list of the eligible lending institutions for CGTMSE loan scheme
- Lending Institutions
- Small Finance Banks (SFBs)
- Regional Rural Banks (RRBs)
- Non-banking Financial Companies (NBFCs)
- Small industrial Development Bank of India (SIDBI)
- Scheduled Commercial Banks (SCBs)
- National Small Industries Corporation (NSIC)
- North Eastern Development Finance Corporation Ltd. (NEDFi)
Documents Required for Loan Under CGTMSE
The following are the list of documents Required for Loan under CGTMSE
- CGTMSE loan application form
- Business incorporation letter
- Company registration certificate
- Copy of loan approval from the respective bank
- A well-planned Business Project Report
- CGTMSE Loan Coverage Letter
- Passport-sized photographs of the applicant
Fees & Charges
The fee applicable under the Guarantee scheme is to be paid to the Trust. The one-time guarantee fee is 1.5% and annual service fee charged is 0.75% on the sanctioned credit facilities. The one-time guarantee fee and annual service fee for loans amount of up to Rs.5 lakh is 1% and 0.5% respectively. Further, the one-time guarantee fee for loans in the North-East Region is only 0.75%
Extended Limit of MSME credit guarantee scheme
The government has now extended the scope of Rs 3 lakh crore on the MSME credit guarantee scheme by doubling the upper ceiling of outstanding loans to Rs 50 crore. This also includes certain individual loans for business purposes under its ambit. The changes made in the Emergency Credit Line Guarantee Scheme (ECLGS) was done based on the new MSME definition approved by the Union Cabinet and the demand from trade bodies. Finance Minister Nirmala Sitharaman stated that the MSME credit guarantee scheme will now include individual loans for business purposes within the ambit of the Emergency Credit Line Guarantee Scheme (ECLGS). Individual loans offered to doctors, chartered accountants for business purposes will also be covered under the scheme. The Cabinet extended the time period of the CGS scheme from June 30, 2020, to March 31, 2021, to purchase pooled assets of the distressed businesses.