Credit Guarantee for Startups

Credit Guarantee for Startups

Credit Guarantee for Startups A credit guarantee for startups is a type of financial support provided by the government or other financial institutions to help small businesses access credit from banks or other lenders. The guarantee helps to mitigate the risk for the lender by providing a guarantee that the loan will be repaid, even if the startup is unable to do so.


The government has notified a credit guarantee scheme for start-ups (CGSS) under which lenders will extend collateral-free loans up to Rs 10 crore to each eligible borrower.

Loans or debt facilities sanctioned to an eligible start-up on or after October 6 can be covered under the scheme, the Department for Promotion of Industry and Internal Trade (DPIIT) said in a notification. The loans will be backed by a sovereign guarantee.

The move is aimed at supporting start-ups that are hit hard by the pandemic and are now going to be impacted further by the rising interest rate scenario when liquidity is unlikely to be easily available to new entrepreneurs.
Already, the government has rolled out the Rs 5-trillion Emergency Credit Line Guarantee Scheme (ECLGS) for Covid-hit businesses.

The latest scheme, albeit for only start-ups, will complement the government’s efforts, through various programs, to ensure smooth credit flow to businesses in the aftermath of the pandemic.


Under this scheme, borrowers will get a maximum guarantee cover per borrower of Rs 10 crore. The DPIIT also mentioned the credit facility being covered under this scheme should  “The Central Government has approved the ‘Credit Guarantee Scheme for Startups (CGSS)’ for the purpose of providing credit guarantee to loans extended by member institutions (MIs) to finance eligible borrowers being startups.

MIs comprise financial intermediaries such as banks, financial institutions, NBFCs and AIFs in the lending or investment space.

What are the eligibility Criteria for availing of the scheme CGSS?

  • Start-ups that have reached the stage of stable revenue over a 12-month period as assessed by audited monthly statements
  • Start-ups should be amenable to debt financing as an option.
  • No default to any lending/investing institution
  • Not classified as a non-performing asset (NPA) according to RBI guidelines.

Trust or fund to be set up for Credit Guarantee Scheme for Start-ups (CGSS)

The central government will set up a trust or fund to guarantee payment against default in loans or debt extended to eligible borrowers.

The Board of National Credit Guarantee Trustee Company will manage the trust or fund as the Trustee of the Fund. Lending institutions will have to closely monitor the borrower accounts and evaluate credit applications.

They also have to select commercially viable proposals with due diligence and conduct accounts of the borrowers. The DPIIT will also constitute a Management Committee to oversee the trust’s affairs.

This committee will review, supervise and monitor the trust’s functioning and provide guidance on broader policy matters related to the scheme.




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