Starting a new company from the ground up is a difficult undertaking. Establishing a new firm requires taking a significant risk. Starting a business can be challenging for two primary reasons: first, it requires a large amount of funding. Second, there is a significant risk to the financial institution. In order to provide a credit guarantee for loans made by Member Institutions (MIs), the government has developed a Credit Guarantee Scheme for Startups.
In this article you get every necessary information regarding this scheme such as objective, eligibility criteria, benefits, required documents and registration process.
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Credit Guarantee Scheme for Startups 2024
The Department for Promotion of Industry and Internal Trade (DPIIT), a central government department, is overseen by the Ministry of Commerce and Industry in India. It develops and implements strategies for industry development and promotion while considering national and socioeconomic objectives. The industrial strategy as a whole is under the authority of DPIIT while several administrative ministries are in charge of production, distribution, expansion, planning and other related tasks.
Financial intermediaries that participate in lending and investing and meet the eligibility requirements specified in the scheme are referred to as MIs. These intermediaries include banks, financial institutions and non banking financial companies. Every qualified case will receive credit guarantees of up to Rs. 5 crore along with other support including working capital, venture capital, debt that may be converted into equity, debentures, term loans, etc. A maximum credit ceiling of Rs. 150 Lakh would apply to this scheme offering up to 75% credit.
Overview of Credit Guarantee Scheme for Startups 2024
Objective of Credit Guarantee Scheme for Startups 2024
The Capital Generation Support System (CGSS) would supplement the existing Startup India initiative programs with the aim of boosting the amount of domestic investment accessible to Indian start ups. The scheme aims to support qualifying borrowers, mostly new enterprises, by offering credit guarantees up to a certain maximum against loans made by member institutions. This guarantee shall be given in relation to loans that the membership makes to qualified borrowers.
Benefits of Credit Guarantee Scheme for Startups 2024
The benefits of this scheme is given below:
- The collateral-free CGSS guarantee enables a simple access to funding for entrepreneurs. As is well known, the majority of entrepreneurs achieve success through bootstrapping. They have trouble getting financing at this time since there isn’t enough collateral.
- The credit guarantee insurance is offered in exchange for a 2% yearly guarantee charge on the amount disbursed. Working capital facilities will be billed against the approved sum. The cost is 1.5% for North-East Indian units and female businesses. This charge may or may not be transferred to the borrowing startup by the MLI.
- There are short and long term loans available under the CGSS to accommodate different company demands. Term loans, venture capital loans, working capital loans, convertible debt with an option to convert, debentures, subordinated debt and mezzanine debt are some examples of the many loan forms. A facility that is not fund based but has turned into a debt obligation may also be covered by it. A transaction based or umbrella based credit guarantee is also an option.
Eligibility Criteria
The eligibility criteria of this scheme is given below:
- The borrower must be a startup that has been approved by the DPIIT based on regular notifications published in the gazette.
- There shouldn’t be any default credit history for the startup with any creditors or investors.
- According to RBI criteria, it shouldn’t be categorized as a non-performing asset.
- The applicant’s eligibility must be certified by the member institution.
- According to audited monthly records covering a full year the company must be at a solid revenue stage that is suitable for debt financing.
Certain other financial Institutions deemed as chosen by the government of india as per set criteria. These Include:
The required documents of this scheme is given below:
- Small Industries Development Bank of India (SIDBI)
- Delhi Financial Corporation
- North Eastern Development Finance Corporation (NEDFI)
- Kerala Financial Corporation National Small Industries Corporation (NSIC)
- Jammu & Kashmir Development Finance Corporation Ltd
- Tamil Nadu Industrial Investment Corporation Ltd.
- Export Import Bank of India
- Andhra Pradesh State Financial Corporation
Pre-Requisites of Credit Guarantee Scheme for Startups
- All resident partners or directors would need to have an Aadhaar for KYC.
- Directors and partners who do not reside in the country must provide their passport number.
- Members of this scheme that provide loans may be scheduled commercial banks/financial institutions, NDFCs registered with the RBI or Alternative Investment Funds (AIFs).
- The National Credit Guarantee Trust Company’s trusteeship management will govern how CGSS operates (NCGTC).
- Without needing a guarantee or security from a third entity, member lending institutions will provide qualifying startups with guarantee sums up to Rs. 5 crore.
- A Management Committee will oversee and manage this MSME scheme.
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Registration Procedure
Any qualifying institution may register for the aforementioned plan by submitting a board resolution and a signed undertaking in the manner provided on the website. The Member Institution (MI) will get access credentials after successfully registering, enabling it to apply for guarantee insurance via the NCGTC portal.
FAQ’s
The Credit Guarantee Scheme for Startup has been introduced by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry.
Many benefits come with CGSS including MI assistance, flexible loan facilities, nominal guarantee charge and no necessity for collateral.
The objective of the Credit Guarantee Scheme for Startups (CGSS) is to offer credit protection against loans made by Member Institutions (MIs) up to a certain amount.