India has emerged as the third-largest startup hub in the world, following the USA and China. The Indian startup ecosystem is booming, with over 1,23,000 DPIIT-recognized startups, as of 2024. Many of these startups originate from Tier 2 and Tier 3 cities, reflecting the growing entrepreneurial spirit across the country. However, despite this rapid growth, one of the biggest challenges that startups face is access to financial support. Recognizing this, the Government of India launched the Credit Guarantee Scheme for Startups (CGSS) in 2022 to help startups secure funding without the burden of collateral requirements.
What is the Credit Guarantee Scheme for Startups?
The Credit Guarantee Scheme for Startups (CGSS) is a government initiative aimed at providing collateral-free credit to DPIIT-recognized startups. It offers credit guarantees up to ₹10 crore for loans extended by banks, NBFCs, and other financial institutions. The scheme ensures that startups have access to the necessary funds to sustain and expand their operations without having to pledge assets as security.
The National Credit Guarantee Trustee Company (NCGTC) acts as a trustee for this scheme, providing guarantee cover to lending institutions. Under this scheme, the loans granted to startups are categorized into two types:
- Transaction-Based Guarantee: Covers loans provided directly by financial institutions.
- Umbrella-Based Guarantee: Provides guarantee support to Venture Debt Funds (VDFs) under SEBI-registered Alternative Investment Funds (AIFs).
Key Benefits of the Scheme
- Collateral-Free Loans: One of the biggest advantages of CGSS is that startups can avail loans without needing to provide collateral.
- Financial Support up to ₹10 Crore: The scheme provides guarantee cover for loans up to ₹10 crore or the actual outstanding credit amount, whichever is lower.
- Encourages Startup Growth: By providing financial support, CGSS encourages startups to focus on scaling operations and expanding business.
- Covers Various Loan Instruments: The guarantee covers multiple types of credit, including venture debt, working capital, subordinated debt, mezzanine debt, debentures, and optionally convertible debt.
- Supports Innovation & Employment Generation: Ensures financial support to startups that contribute to innovation, job creation, and economic growth.
Who is Eligible for the Credit Guarantee Scheme for Startups?
To avail the benefits under CGSS, startups must meet the following eligibility criteria:
- DPIIT Recognition: The startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).
- Age of the Startup: The startup must be less than 10 years old from the date of incorporation.
- Type of Business Entity: The company should be registered as a Private Limited Company, Limited Liability Partnership (LLP), or a Registered Partnership Firm.
- Annual Turnover Limit: The startup’s annual turnover must not exceed ₹100 crore.
- Stable Revenue Stream: The startup must have a stable revenue stream over the last 12 months, as verified by audited financial statements.
- No Loan Defaults: The startup must not be classified as a Non-Performing Asset (NPA) and must not have defaulted on any loans as per RBI guidelines.
- Innovative & Scalable Business Model: The startup should be working on an innovative and scalable business model that contributes to economic development.
How to Apply for the Credit Guarantee Scheme for Startups?
The application process for the Credit Guarantee Scheme for Startups is straightforward. Below are the step-by-step instructions:
Step 1: Get DPIIT Recognition
- If your startup is not yet recognized by DPIIT, you need to apply for recognition first.
- Visit the National Single Window System Website and create an investor account.
- Fill out the “Registration as a Startup” application form with the required details.
- Once approved, you will receive a DPIIT Recognition Certificate.
Step 2: Approach a Member Institution (MI)
- After receiving DPIIT recognition, approach a registered financial institution (bank, NBFC, or AIF) that is part of the CGSS scheme.
- Submit the required documents (listed below) for loan approval.
- The financial institution will evaluate the application based on business potential, scalability, and revenue generation.
Step 3: Loan Approval and Guarantee Coverage
- Once the financial institution approves the loan, it applies to NCGTC for credit guarantee coverage under CGSS.
- Upon approval, the guarantee is provided, and the loan amount is disbursed to the startup.
Documents Required for the Application
To apply for a loan under CGSS, startups need to submit the following documents:
- PAN Card
- Company Registration Certificate
- Revenue Details (Audited Financial Statements)
- Voter ID/Aadhaar Card (for promoters)
- Passport Size Photograph
- Residence Proof
- Company Address Proof
- DPIIT Recognition Certificate
- Any other document required by the financial institution
List of Registered Financial Institutions Under CGSS
As of 2024, a total of 31 financial institutions are registered under CGSS, including public and private sector banks, foreign banks, NBFCs, and venture funds. Here are some of the major institutions:
Public Sector Banks
- State Bank of India
- Punjab National Bank
- Canara Bank
- Indian Bank
- UCO Bank
- Bank of Baroda
- Union Bank of India
Private Banks
- HDFC Bank
- Axis Bank
- IDFC First Bank
- Yes Bank
- Karnataka Bank
Foreign Banks
- Standard Chartered Bank
NBFCs
- Caspian Impact Investments
- Incred Financial Services
- Samunnati Financial Intermediations
Financial Institutions & AIFs
- SIDBI
- EXIM Bank
- RevX Capital Fund-I (AIFs)
Conclusion
The Credit Guarantee Scheme for Startups (CGSS) is a game-changer for India’s startup ecosystem. By providing collateral-free loans and credit guarantees up to ₹10 crore, the scheme is helping entrepreneurs overcome financial barriers and scale their businesses effectively. Whether you are a tech startup, a manufacturing enterprise, or an innovative service provider, this scheme provides the much-needed financial backing to fuel growth, create jobs, and contribute to India’s economic development.
For Indian entrepreneurs looking to leverage government support, the CGSS is an excellent opportunity. Startups are encouraged to get DPIIT recognition, approach eligible financial institutions, and secure funding under this initiative. With the Indian government’s strong push for startup growth, the future looks promising for innovators and business leaders across the country.