Notified Credit Guarantee Scheme for Startups

Home » Learn » Business Startup » Notified Credit Guarantee Scheme for Startups

Credit Guarantee Scheme for Startups

Recently, vide notification dated 6th October 2022, the Ministry of Commerce and Industry notified the ‘Credit Guarantee Scheme for Startups. The broad objective of the ‘Credit Guarantee Scheme for Startups’ is to provide a guarantee to finance eligible startups up to a specified limit against the credit instruments extended by the Member Institutions.

The said notified ‘Credit Guarantee Scheme for Startups’ (CGSS) is taken up and briefly explained in the present article.

Eligibility criteria of the borrower under ‘Credit Guarantee Scheme for Startups –

The startups willing to borrow under CGSS need to satisfy the following mandatory eligibility criteria –

  1. The startup should be recognized by the Department for Promotion of Industry and Internal Trade (i.e., DPIIT);
  2. The startup should have reached the stage of a stable revenue stream amenable to debt financing;
  3. The startup should not be in default to any lending/ investing institution;
  4. The startup should not be classified as Non-Performing Asset (NPA) as per RBI guidelines;
  5. The startup’s eligibility criteria should be certified by the member institution for guarantee cover.

Eligibility criteria of lending/ investing institutions under ‘Credit Guarantee Scheme for Startups –

The eligibility criteria for the lending/ investing institutions under CGSS are highlighted hereunder –

  1. Scheduled commercial banks;
  2. Financial institutions;
  3. RBI registered specific Non-Banking Financial Companies (NBFCs);
  4. SEBI registered Alternative Investment Funds (AIFs).

Guarantee and ceiling limit thereof under ‘Credit Guarantee Scheme for Startups –

The credit guarantee cover available under CGSS will be on any of the following basis –

  1. Transaction-based guarantee covers; and
  2. Umbrella-based guarantee cover.

Importantly, Alternative Investment Funds are not eligible to avail of transaction-based guarantee cover under CGSS.

Both the cover i.e. transaction-based and umbrella based are briefly explained hereunder.

Notably, the maximum ceiling on guarantee cover per borrower under CGSS shall not exceed INR 10 Crores.

Transaction-based Guarantee cover –

Period of guarantee cover under transaction-based cover –

  • Begin from the date of payment of the guarantee fee; and
  • Shall run through the agreed period/ tenure of the loan/ debit facility.

The extent of guarantee cover under transaction-based cover –

The trust will provide guaranteed coverage in the following manner –

Particulars Details
To the extent of 80% of the amount in default If the original loan sanction amount is up to INR 3 Crores
To the extent of 75% of the amount in default If the original loan sanction amount is above INR 3 Crores and up to INR 5 Crores
To the extent of 65% of the amount in default If the original loan sanction amount is above INR 5 Crores

Notably, the above limit is subject to a maximum of INR 10 Crore per borrower.

Umbrella-based Guarantee cover –

Here, the cover will be based on ‘Pooled Investment in Startups’. Notably, the term ‘Pooled Investment in Startups’ means a cumulative investment in DPIIT-recognized Startups during the life of the fund.

Period of guarantee cover under umbrella-based cover –

  • Begin from the date of payment of commitment charges; and
  • Shall run through the life of the Venture Debt Fund (VDF).

The extent of guarantee cover under umbrella-based cover –

The trust will provide guarantee covers up to lower of the following –

  • Actual losses; or
  • Up to a maximum of 5% of the pooled investment on which cover is taken from the fund in Startups.

Notably, the above limit is subject to a maximum of INR 10 Crore per borrower.

Management of ‘Credit Guarantee Scheme for Startups –

The entire CGSS will be managed by –

  1. Management Committee;
  2. Risk Evaluation Committee.

The basic functioning of both Committees is explained hereunder –

  1. Management Committee –
  • It will be constituted by the Department for Promotion of Industry and Internal Trade (i.e., DPIIT);
  • It will oversee the affairs of the Trust;
  • It will be responsible for reviewing, monitoring, and supervising the functioning of the Trust;
  • The structure of the Management Committee will be –
    • Chairperson – Secretary DPIIT;
    • Member – Additional Secretary & Financial Advisor, DPIIT; Additional Secretary or Joint Secretary (Startups), DPIIT; and Joint Secretary, Department of Financial Services; and
    • Member Secretary – Chief Executive Officer, NCGTC.
  1. Risk Evaluation Committee –
    • It will be constituted by the Department for Promotion of Industry and Internal Trade (i.e., DPIIT);
    • It will have to report to the Management Committee;
    • It will be a risk evaluation body;
    • The members of the Risk Evaluation Committee will consist of retired bankers, credit guarantee experts, rating agencies, venture debt specialists, etc.

Other Related Guides

Odisha Youth Innovation Fund Scheme (OYIF) Odisha Youth Innovation Fund Scheme (OYIF) To motivate and encourage young minds for innovative ideas, the Government of Odisha has launched the Odis...
Swarojgar Credit Card Scheme Swarojgar Credit Card Scheme Swarojgar Credit Card Scheme was introduced to provide adequate and timely credit that includes working capital/block ca...
TV Channel for Startups TV Channel for Startups The first Budget of the new Government (Budget 2019) announced the launch of a television channel, which is specifically mean...
Credit Guarantee Scheme for Startups (CGSS) Credit Guarantee Scheme for Startups (CGSS) The Government of India has formulated a Credit Guarantee Scheme for Startups (CGSS) with a contribution ...

Post by poonamgandhi

CA Poonam Gandhi is a Chartered Accountant and a Lawyer. With a wide practice experience and deep understanding of different laws and taxes, she has been an independent professional writer in the field of taxation, finance and laws.