All businesses require steady cash flow to maximise growth opportunities. One of the biggest hurdles faced by micro, small and medium enterprises (MSMEs) is that it’s difficult to get business loans from traditional lenders due to lack of collateral and other assets.
Without the right funding, MSMEs miss out on key market opportunities – they are unable to expand and grow. Realizing the crucial role played by MSMEs in the national economy, the government of India has launched several innovative schemes like the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE).
Here, in this guide, we offer you insights on what this scheme, what are its benefits, how to apply, eligibility criteria and more.
CGTMSE – In a Nutshell
What is it? To offer financial assistance to MSMEs without any need for collateral or third-party guarantee
Who is it for? New and Existing MSMEs
Who runs it? The SIDBI and the Ministry of MSME, Government of India
What is the CGTMSE?
The Credit Guarantee Trust Fund Scheme for Micro and Small Enterprises (CGTMSE) was launched by the Ministry of Micro Small & Medium Enterprises (MSME), under the Government of India to ensure timely financial assistance reaches MSMEs without the need for any collateral or third-party guarantee.
The SIDBI (Small Industries Development Bank of India) and the Ministry of Micro, Small and Medium Enterprises have jointly established a trust, the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) to implement this scheme.
Additional Reading: Government Loans For Small Scale Businesses
The basic idea of this scheme is that it offers assurance to lenders. The scheme offers guarantee cover to borrowers (MSMEs). For instance, if a borrower defaults on a payment, the CGTMSE trust fund will take care of the guarantee cover in the ratio of 50/75/80/85 percent of the borrowed amount.
The primary objective of this scheme is to ensure that borrowers receive the required term loans and working capital loans from lenders, even when they don’t have collateral or security.
Benefits and Highlights of the CGTMSE
All micro and small enterprises under the MSMED Act are eligible for loans under the CGTMSE scheme. It covers both manufacturing and service enterprises.
The scheme offers loans up to Rs. 2 crores for eligible MSMEs, without collateral security or third-party guarantee.
As per the scheme, the guarantee cover available is up to 50% / 75% / 80% / 85% of the sanctioned credit amount.
The guarantee cover for loans up to Rs. 5 lakhs is up to 85%.
The guarantee cover for loans from Rs. 10 lakhs to Rs. 1 crore is 50%.
Micro and small enterprises owned/operated by women can avail guarantee cover up to 80%.
Micro and small enterprises in the NER (North-East Region) can avail up to 80% guarantee cover for loans up to Rs. 50 lakhs.
Who is eligible for the CGTMSE fund?
The benefits of the fund are available to new and existing micro, small and medium enterprises who are engaged in any of the following:
All service businesses except for self-help groups, educational institutions, retail trade, and training institutions.
Which banks offer business loans under the CGTMSE scheme?
The following banks act as eligible lenders to receive the benefits of the CGTMSE scheme:
Scheduled commercial banks including public sector banks, private banks and foreign banks
NABARD has categorised certain regional rural banks as eligible lenders for the CGTMSE scheme under the “Sustainable Viable,” category.
Currently, there are 133 eligible lending institutions under the CGTMSE Trust. It includes 26 public sector banks, 73 regional rural banks, 21 private banks, 9 financial institutions and 4 foreign banks. Besides these banks, the eligible lenders include the Kerala Financial Corporation, Delhi Financial Corporation, Export-Import Bank of India, the Jammu & Kashmir Development Finance Corporation Ltd, the Tamil Nadu Industrial Investment Corporation Ltd, the NEDFI (North Eastern Development Finance Corporation), the NSIC (National Small Industries Corporation) and the SIDBI (Small Industries Development Bank of India).
How to apply for the CGTMSE scheme?
The detailed step by step guidance for availing the benefits of this scheme is listed below:
Step 1: Prepare a Business Plan
The first step is to prepare a detailed business plan. It should include the funding required, what you plan to do with it, the expected returns and other financial details of the project. The business model should also consider the feasibility of the project.
Step 2: Choose the Right Lender
As mentioned above, 100+ lenders offer the benefits of this scheme. Make sure to compare different lenders – eligibility criteria, interest rates, repayment tenure and more – to choose the right lender for your requirements.
Step 3: Approach your Preferred Lender
The next step is to submit your detailed business plan to the shortlisted lender. Submit the business loan application form to the lender.
Step 4: Verification
The lender verifies the details of your business plan, considers its feasibility and scrutinizes the business proposal.
Step 5: Sending the Application to the CGTMSE Fund
Once the lender verifies your business plan and checks your eligibility requirements, your application is forwarded by the lender to the CGTMSE Fund. If approved, the CGTMSE fund provides the guarantee and instructs your lender to release the funds required by your business.
Once your loan has been sanctioned, you can use it to meet your business requirements. As a borrower, you repay the loan in the form of EMIs, which includes the principal, interest rate and the CGTMSE guarantee fee and service fees. The guarantee fees and service fees are forwarded to the CGTMSE by the lender.
Documentation Required for Loans under the CGTMSE
All borrowers have to provide the required KYC documents like:
Business registration details
Besides these documents, all borrowers have to submit the IT PAN number of the business. However, CGTMSE is not insisting on submitting the PAN for loans up to Rs. 5 lakhs. For all loans above Rs. 5 lakhs, the borrower has to provide the IT PAN number.
Fees Charged for CGTMSE Loans
For all loans disbursed under the CGTMSE scheme, the borrower has to pay fees to the trust fund. The fee charged is:
0.75% for loans up to Rs. 5 lakhs
0.85% for loans above Rs. 5 lakhs but lesser than Rs. 1 crore
Additional Reading: What Government Loans Are Available For Entrepreneurs?
Avail Bank Credit without the Hassles of Collaterals and Third-Party Guarantee
One of the biggest challenges faced by micro and small enterprises is availing bank loans. As most small businesses don’t have collateral or other assets, getting the required funding from traditional lenders was a huge hurdle. The Ministry of MSME helps business owners overcome these challenges by offering collateral-free loans under the Credit Guarantee Scheme. For further information on how to apply for loans under the CGTMSE scheme, get in touch with our loan experts here at CreditMantri for expert guidance.