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Tata Capital > Blog > Loan for Business > CGTMSE: Credit Guarantee Scheme for MSME—Full Form, Eligibility & Application

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CGTMSE: Credit Guarantee Scheme for MSME—Full Form, Eligibility & Application

CGTMSE: Credit Guarantee Scheme for MSME—Full Form, Eligibility & Application

The Micro and Small Enterprises (MSEs) play a vital role in the Indian economy. However, these enterprises often need help accessing credit due to weak credit history and collateral.

This Credit Guarantee Scheme (CGS) addresses this issue by providing credit guarantees to financial institutions, enabling them to extend collateral-free credit to MSEs. In fact, during FY 2023, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) has issued guarantees amounting to ₹1,04,781 crore.

Whether you’re a startup enthusiast or a seasoned business leader, understanding the role of CGTMSE could be pivotal for your entrepreneurial journey.

In this blog post, we cover various CGTMSE scheme details. Let’s find out how CGTMSE can support your business goals.

What is CGTMSE? (Full Form, Purpose & How Credit Guarantee Works)

CGTMSE’s full form is Credit Guarantee Fund Trust for Micro and Small Enterprises. This scheme was initiated in 2000 by the Government of India and SIDBI. It aims to foster the growth of Micro and Small Enterprises (MSEs).

The CGTMSE scheme serves as a vital resource for MSEs, addressing the challenge of accessing financial support from traditional lenders.

Under this scheme, MSEs can secure credit facilities without the burden of providing tangible collateral or third-party guarantees. Instead, the scheme offers a guarantee cover to lending institutions, reducing their risk in case of borrower default. This reduces the lending risk for financial institutions and enhances the creditworthiness of MSEs.

The CGTMSE scheme is inclusive, catering to MSEs across diverse manufacturing, services, and retail sectors. It prioritises inclusivity by empowering economically weaker sections, women entrepreneurs, and those in rural or underserved areas.

CGTMSE Scheme Eligibility Criteria (Who Can Apply?)

The eligibility criteria for the CGTMSE loan and scheme are as follows:

  1. Micro and Small Enterprises (MSEs): Both existing and new MSEs operating in various sectors, including manufacturing and services, are eligible.
  1. Size of enterprises: MSEs of all sizes are eligible, ensuring accessibility for budding entrepreneurs and established businesses.
  1. Lending institutions: Participation is open to a wide range of lending institutions, including National Small Industries Corporation (NSIC), Non- Banking Financial Companies (NBFC), North Eastern Development Finance Corporation Ltd (NEDFi), Regional Rural Banks (RRBs), Scheduled Commercial Banks (SCBs), Small Finance Banks (SFBs), and Small Industries Development Bank of India (SIDBI).
  1. Special provisions: Special provisions are made for specific categories, such as women entrepreneurs and businesses in the Northeast Region (NER), offering enhanced guarantee cover and tailored credit facilities.

CGTMSE Scheme Features (Guarantee Coverage, Maximum Loan, No-Collateral)

The CGTMSE scheme offers several key features that make it attractive for MSEs:

  1. The scheme operates within the framework of RBI guidelines, ensuring transparency and consistency in CGTMSE loan interest rate.
  1. MSEs engaged in manufacturing and services, excluding specific sectors like educational institutions and agriculture-related activities, are eligible for coverage.
  1. The CGTMSE loan amount is between Rs. 50 lakhs to Rs. 5 crores, depending on the type of lending institution.
  1. CGTMSE provides guarantee coverage ranging from 75% to 85%, reducing the risk for lenders and encouraging them to extend credit to MSEs without requiring collateral or third-party guarantees.
  1. One of the most significant advantages of the CGTMSE scheme is that it eliminates the need for collateral or third-party guarantees, making credit more accessible to MSEs.

CGTMSE Benefits for MSME Owners & Startups

The CGTMSE scheme offers several benefits for MSEs:

  1. Financial inclusion: By providing collateral-free credit, the scheme promotes financial inclusion, enabling MSEs, especially those from marginalised sections, to access formal credit facilities.
  1. Risk mitigation: The guarantee provided by CGTMSE mitigates the risk for lenders, encouraging them to extend credit to MSEs that may otherwise be deemed too risky.
  1. Business growth: Access to credit under the scheme facilitates business growth, allowing MSEs to invest in expansion, technology adoption, and market diversification.
  1. Empowerment: The scheme empowers MSEs to fulfil their potential, driving entrepreneurship, innovation, and job creation.

How Does the CGTMSE Loan/Guarantee Scheme Work?

Here’s a breakdown of how the CGTMSE loan works:

Step 1: MSEs must meet the eligibility criteria and gather all required documents.

Step 2: Choose a suitable Member Lending Institution (MLI) under the CGTMSE scheme based on their offerings and terms.

Step 3: Submit the business loan application and the required documents to the chosen MLI.

Step 4: The MLI reviews the application, conducts due diligence, and assesses the viability of the business proposal.

Step 5: If the application meets the MLI’s criteria, they sanction the loan amount per their internal policies and the CGTMSE scheme guidelines.

Step 6: The MLI applies to CGTMSE for guarantee cover on behalf of the borrower.

Step 7: The borrower pays the applicable guarantee fee and service charges to CGTMSE registration as per the approved rates.

Step 8: The MLI disburses the sanctioned loan amount to the borrower’s account upon approval of the guarantee cover.

Step 9: The borrower repays the loan per the agreed schedule, including principal and interest payments.

The borrower must comply with all terms and conditions of the loan agreement and ensure timely repayment throughout the loan tenure.

Also,read: Mudra Business Loan: How to Apply, Eligibility & Documents  

CGTMSE Scheme: Stepwise Loan Application & Approval Process

The following steps explain how MSMEs can smoothly move from application to disbursal under the CGTMSE framework.

  • Lender Selection: Choose an eligible Lender, participating in the Credit Guarantee Scheme for MSME, and discuss your funding requirement, and business profile.
  • Documentation Readiness: Compile essential documents, including KYC, Udyam registration, financial statements, and the CGTMSE loan application form, for accurate submission.
  • Loan Application: Submission Submit the completed application to the Lender, for preliminary verification and processing.
  • Credit Assessment: The Lender evaluates business viability, repayment capacity, and overall creditworthiness.
  • Guarantee Coverage: Request Upon approval, the Lender applies to CGTMSE, for guarantee cover, on your behalf.
  • Loan Sanction and Disbursal: After guarantee confirmation, funds are sanctioned, and disbursed, for business use.

Also,read:What Are the Types of Business Loans?  


Documents Required for CGTMSE Loan Application

Looking to benefit from a CGTMSE loan for a new business? Here is a set of CGTMSE loan documents you’ll need to submit:

  1. Duly filled CGTMSE loan application form
  1. Business incorporation or registration certificate
  1. Business project report outlining the proposed venture’s viability and financial projections
  1. CGTMSE loan coverage letter issued by the lending institution

5. Copy of loan approval from the bank

CGTMSE Guarantee Fees, Coverage Table & Renewal

  • Guarantee Fee Structure: The guarantee fee is charged annually, on the outstanding loan amount, and varies based on loan size, borrower category, and risk profile under the Credit Guarantee Scheme for MSME.
  • Coverage Levels: The guarantee typically covers 75 per cent to 85 per cent of the sanctioned amount, offering meaningful risk protection to the Lender.
  • Concessional Benefits: Women entrepreneurs and select priority segments may receive higher coverage, improving overall credit access.
  • Validity and Renewal: Guarantee cover remains active for the loan tenure, and renewal is required annually, subject to timely fee payment.
  • Application Compliance: Accurate submission of the CGTMSE loan application form, along with supporting documents, ensures uninterrupted guarantee coverage.

 Also,read: Top 5 Benefits Of Pradhan Mantri Mudra Yojana 


Common Reasons for CGTMSE Loan Rejection & Tips to Improve Approval Odds

Here are common pitfalls in loan decisions and practical tips to strengthen your application under the CGTMSE scheme eligibility framework.

  • Incomplete Documentation: Missing or inaccurate business records, and financials, often lead to rejection, so ensure your paperwork is complete, and up to date.
  • Weak Financials: Poor cash flow, and low profitability, increase risk perception at the Lender, so maintain clear accounts, and realistic projections.
  • Credit History Issues: A low credit score, or past defaults, reduce repayment confidence, so clear outstanding dues, and build consistent credit behaviour.
  • Unconvincing Business: Plan An unclear strategy, or weak market understanding, affects approval, so present a focused plan, showing growth, and repayment capacity.
  • Lack of Preparation: Limited scheme awareness creates errors, so review eligibility norms, and align your application carefully.

Conclusion

Over the years, the CGTMSE scheme has promoted entrepreneurship, innovation, and economic development by providing crucial financial support to MSEs across India. It has facilitated the growth and sustainability of numerous small businesses, thereby improving overall socio-economic progress and prosperity.

Looking to secure financial support for your business? Explore Tata Capital’s MSME loan options tailored to meet your needs. Whether you’re a small enterprise or a growing business, we’re here to help you thrive.

Visit the Tata Capital website or download the Tata Capital App to learn more about our financing options.

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FAQs

What is the full form of CGTMSE and who operates the scheme?

CGTMSE stands for Credit Guarantee Fund Trust for Micro and Small Enterprises, operated jointly by the Government of India and SIDBI, to support collateral free business lending.

Who is eligible for a loan or guarantee under the CGTMSE scheme?

Micro and small enterprises engaged in manufacturing or services meeting CGTMSE scheme eligibility norms can seek guarantee support through an approved Lender.

Can new and existing MSMEs apply for CGTMSE loans?

Yes, both new ventures and existing MSMEs can apply, provided they meet operational criteria, financial viability checks, and the Lender’s internal credit assessment process.

What is the maximum credit guarantee (amount and percent) under CGTMSE?

The scheme offers guarantee cover up to ₹5 crore, generally covering 75 per cent to 85 per cent of the sanctioned credit amount.

Are startups or women entrepreneurs eligible for the CGTMSE scheme?

Yes, startups and women led enterprises are eligible, with certain categories receiving higher guarantee coverage, encouraging inclusive and growth oriented entrepreneurship.

Is collateral security required under the CGTMSE scheme?

No collateral or third party guarantee is required, as the Credit Guarantee Scheme for MSME provides risk cover to the Lender for eligible loans.

What documents are required for the CGTMSE loan application form?

Key documents include KYC details, Udyam registration, financial statements, business proof, and the duly filled CGTMSE loan application form.

Can I apply for CGTMSE online or through any bank/NBFC?

Applicants must approach a participating Lender, including select NBFCs, as CGTMSE applications are routed through authorised lending institutions only.

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