• The Department for Promotion of Industry and Internal Trade (DPIIT) has notified the expansion of Credit Guarantee Scheme for Startups (CGSS).

• It increases the ceiling on guarantee cover per borrower under the scheme from Rs 10 crore to Rs 20 crore. 

Credit Guarantee Scheme for Startups (CGSS)

• The government notified Credit Guarantee Scheme for Startups (CGSS) on October 6, 2022 to provide guarantee up to a specified limit against credit instruments extended to startups by Scheduled Commercial Banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).

• Implemented by the National Credit Guarantee Trustee Company Limited (NCGTC), it aims to offer credit guarantees up to a specified limit, easing access to funding for startups.

• The broad objective of CGSS is to finance eligible startups, by enabling collateral free debt funding to startups through avenues such as working capital, term loans, and venture debt.

• As of January 3, 2025, the scheme has guaranteed 260 loans worth Rs 604.16 crore to 209 startups.

• Among these, Rs 27.04 crore has been allocated to 17 women-led startups.

Expansion of CGSS 

• The Union Budget 2025-26 had proposed the enhancement of credit availability with guarantee cover for startups.

• It aims to further catalyse entrepreneurship by providing enhanced credit support to innovators and encourage financial institutions in the ecosystem to provide early-stage debt funds to startups.

• The extent of guarantee cover provided has also been increased to 85 per cent of the amount in default for loan amount up to Rs 10 crore and 75 per cent of the amount in default for loan amount exceeding Rs 10 crore.

• Further, the Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been reduced to 1 per cent per annum from 2 per cent per annum. 

• The Champion Sectors have been identified by the government under ‘Make in India’ to provide a thrust to India’s manufacturing and service capabilities. 

• The reduction in AGF for Champion Sectors will make funding more attractive for the identified sectors and boost innovation in domestic manufacturing and self-reliance.

• The notified expansions aim to address the financing needs of innovation-driven startups. 

• As a result of the increased guarantee support and coverage, the number of financial institutions coming forward to provide credit support to startups shall increase, thereby increasing overall fund flow for startups.

(The author is a trainer for Civil Services aspirants.)