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How to Get Business Loan from CGTMSE Scheme

CGTMSE stands for Credit Guarantee Fund Trust for Micro and Small Enterprises. The government along with the Small Industries Development Bank of India(SIDBI) launched the CGTMSE loan scheme for small-scale industry sectors to provide collateral-free loans in the year 2000.

Under this scheme, an entrepreneur can apply for a loan from the bank without any collateral deposit. And we all understand the importance of funding assistance in starting a project.

In starting a new project, almost every startup entrepreneurs need funding assistance from financial institutions including Bank and NBFCs. However, banks often ask for collateral security from the owners. And banks ask for the collateral amount the same as the loan amount.

Additionally, banks ask for a third-party guarantee too. And it is immensely difficult for a first-generation entrepreneur to arrange the collateral to get access to the loan fund. And here, the scheme comes as an effective solution.

What is the CGTMSE Scheme?

The main objective of the scheme is to make bank credit available to entrepreneurs without the hassles of collateral/third-party guarantees. Therefore, the scheme becomes a support to the first generation entrepreneurs to realize their dream of setting up a unit of their own Micro and Small Enterprise (MSE).

Keeping this objective in view, the Ministry of Micro, Small & Medium Enterprises (MSME), and the Government of India launched Credit Guarantee Scheme (CGS) to strengthen the credit delivery system and facilitate the flow of credit to the MSE sector.

To operationalize the scheme, the Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

The main goal is for the lender to prioritize the viability of the project. Furthermore, the lender secures the credit facility solely on the primary security of the financed assets.

Another goal is for the lender to use the guarantee facility to try to give the borrowers composite credit. As a result, borrowers can obtain both term loans and working capital from a single agency.

The Credit Guarantee Scheme (CGS) seeks to reassure lenders that if an MSE unit that received collateral-free credit fails to discharge its liabilities to the lender, the Guarantee Trust will make good the lender’s loss up to 50/75/80/85 percent of the credit facility.

What is the Loan Amount One Can Get from CGTMSE Scheme?

Startups and existing businesses can get a bank loan of up to Rs. 2 crores as a term loan or working capital loan under the CGTMSE scheme.

CGTMSE Scheme Salient Features

  • Micro & Small Enterprises as per the MSMED Act eligible.
  • Credit guarantee for MSE loans up to 1 crore, without collateral and third-party guarantee.
  • Both the Manufacturing and Service sectors are covered.
  • Credit for retail trade, educational/training institutions, and SHGs is not eligible for coverage.
  • All fund / non-fund-based facilities are covered.
  • Maximum Guarantee Cover of up to 85% of credit facility covered under CGS.
  • Guarantee coverage is 50% for credit facilities covered under CGS above 50 lakhs.

CGTMSE Scheme Eligibility Criteria

New and existing Micro and Small Enterprises engaged in manufacturing or service activity can apply under CGTMSE Scheme. However, the scheme excludes Retail Trade, Educational Institutions, Agriculture, Self Help Groups (SHGs), Training Institutions, etc.

Related: Best Personal Loan Apps in India

As of now, all activities that come under the service sector as per the MSMED Act, 2006 except retail trade are eligible for coverage under the scheme. Additionally, small road and water transport loans are eligible for guarantee cover.

Under the Guarantee Scheme, you need to obtain an IT PAN number prior to availing of a credit facility from the eligible lending institution. Also, it is a mandatory requirement under section 139A(5) read with section 272(C) of the I.T Act 1961 to indicate IT PAN on all tax documents which include returns, challans, appeals, etc. However, in respect of loans up to 10 lakhs, CGTMSE is presently not insisting that the IT PAN be obtained at the time of availing of the guarantee cover.

Additionally, existing units can apply for additional credit facilities in the form of term loans or renewal of working capital facilities. Any facility given on the basis of collateral security or third-party guarantee shall be disqualified for coverage under the scheme. The Trust also reserves the right to reject any application for the guarantee cover, if it deems it necessary.

CGTMSE Scheme Interest Rate

The Credit Guarantee Scheme leaves it to the discretion of the MLIs to decide about passing on the incidence of the Guarantee Fee and Annual Service Fee to the borrower. Alternatively, they may decide to bear it themselves. The banks shall follow the guidelines issued by RBI. However, the interest rate shall not exceed 3% over and above the Prime Lending Rate of the MLI, excluding the annual service fee.

4 Steps to Follow to Get CGTMSE Business Loan

First of all, you can’t apply for a loan under CGTMSE Scheme online. You have to contact the banks nearby you. Broadly, there are four steps for applying for a loan under this scheme.

Step 1 – Form the Business Organization

Forgetting the fund for a new business, you have to form the business organization first. According to the mode of operation, register your business. Additionally, obtain the necessary licenses and permissions from the respective Govt. authority. Furthermore, open a current bank account and apply for a business PAN Card.

Step 2 – Prepare the Project Report or Business Plan

This is the most important aspect of getting the bank loan approved under this scheme. Because the project viability is the most crucial factor that the bank considers. Therefore, you must submit a full-proof project report with market analysis, ROI, Break-Even, and Payback calculations.

It is advisable to take help from professionals to craft the project report properly. Additionally, you must put the feasible data and information to make it acceptable to the banks.

Step 3 – Apply for the sanction of a Bank Loan

After getting the project report, you can apply for a loan. It is advisable to talk with at least 2 to 3 banks that are nearby you. If you already have an account in any of the nearby banks, the first thing is to start talking to them.

ReadHow to Get Working Capital Loans

Step 4 – Get Coverage under CGTMSE Scheme

After getting the sanction of the loan, the bank will apply for the subsidy to the CGTMSE organization. For the approval of the scheme, the bank needs to submit several documents. After the approval, you have to pay the CGTMSE guarantee and service fee if any.

List of Banks Who Provide Loans under the CGTMSE Scheme

Public Sector Banks (12 nos.)

  • Bank of Baroda
  • Bank of India
  • Bank of Maharashtra
  • Canara Bank
  • Central Bank of India
  • Indian Bank
  • Indian Overseas Bank
  • Punjab & Sind Bank
  • Punjab National Bank
  • State Bank of India
  • UCO Bank
  • Union Bank of India

Private Sector Banks Providing CGTMSE Loans

  • Axis Bank Ltd
  • Bandhan Bank Limited
  • Catholic Syrian Bank
  • City Union Bank
  • Development Credit Bank Ltd
  • HDFC Bank Ltd
  • ICICI Bank Ltd
  • IDBI Bank Ltd
  • IDFC First Bank Ltd
  • IndusInd Bank Ltd
  • Karnataka Bank Ltd
  • Kotak Mahindra Bank Ltd
  • Lakshmi Vilas Bank
  • Tamilnad Mercantile Bank Ltd
  • The Dhanalakshmi Bank Ltd
  • The Federal Bank Ltd
  • The Jammu & Kashmir Bank Ltd
  • The Karur Vysya Bank Ltd
  • The Nainital Bank Ltd
  • The Ratnakar Bank Ltd
  • The South Indian Bank Ltd
  • YES Bank Limited

Foreign Banks Providing CGTMSE Loans

  • Bank of Bahrain and Kuwait
  • Barclays BankPLC
  • DBS Bank
  • Deutsche Bank
  • Standard Chartered Bank
  • SBM Bank (India) Ltd

Small Finance Banks Providing CGTMSE Loans

  • AU Small Finance Bank
  • Equitas Small Finance Bank Ltd
  • ESAF Small Finance Bank Ltd
  • Suryoday Small Finance Bank Ltd
  • Ujjivan Small Finance Bank Ltd
  • North East Small Finance Bank
  • Shivalik Small Finance Bank
  • Utkarsh Small Finance Bank
  • Jana Small Finance Bank

We hope, this article will definitely help you in securing a collateral-free business loan for your small-scale unit under CGTMSE Scheme.

About Next What Business Research Team

The Editorial Staffs at NextWhatBusiness is a team of Business Consultants with years of experience in small and medium-scale manufacturing and service-based businesses.