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How to Get Business Loans under CGTMSE Scheme

CGTMSE stands for Credit Guarantee Fund Trust for Micro and Small Enterprises. Basically, Govt. launched the CGTMSE scheme for small scale industry sectors to provide collateral-free loans.

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

In starting a new project, almost every startup entrepreneurs need funding assistance from the 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.

Step  by Step Guide on How to get Business Loan under CGTMSE Scheme

What is the CGTMSE Scheme?

The main objective of the scheme is to make the bank credit available to the entrepreneurs without the hassles of collaterals/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), the Government of India launched Credit Guarantee Scheme (CGS) so as 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 objective is that the lender should give importance to the project viability. Additionally, the lender secures the credit facility purely on the primary security of the assets financed.

The other objective is that the lender availing guarantee facility should endeavor to give composite credit to the borrowers. So that the borrowers obtain both term loan and working capital facilities from a single agency.

The Credit Guarantee Scheme (CGS) seeks to reassure the lender that, in the event of an MSE unit, which availed collateral-free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 50/75/80/85 percent of the credit facility.

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 covered.
  • Credit for retail trade, educational/training institutions, and SHGs are not eligible for coverage.
  • All fund / non-fund based facility covered.
  • Maximum Guarantee Cover of up to 85% of credit facility covered under CGS.
  • Guarantee coverage is 50% for credit facility covered under CGS above 50 lakh.
  • 133 Banks / RRBs / other lending institutions registered as MLIs with CGTMSE (26 PSU Banks, 21 Pvt. Banks, 73 RRBs, 9 Financial Institutions, and 4 Foreign Banks).

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 lakh, 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 the 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 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 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.

Steps to Follow for Loan Application Under CGTMSE Scheme

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

After getting the project report, you can apply for the 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 CGTMSE Scheme

Public Sector Banks (21 nos.)

1 Allahabad Bank
2 Andhra Bank
3 Bank of Baroda
4 Bank of India
5 Bank of Maharashtra
6 Bharatiya Mahila Bank Ltd.
7 Canara Bank
8 Central Bank of India
9 Corporation Bank
10 Dena Bank
11 IDBI Bank Limited
12 Indian Bank
13 Indian Overseas Bank
14 Oriental Bank of Commerce
15 Punjab & Sind Bank
16 Punjab National Bank
17 Syndicate Bank
18 UCO Bank
19 Union Bank of India
20 United Bank of India
21 Vijaya Bank

SBI & Its Associates Banks (6 nos.)

1 State Bank of India
2 State Bank of Bikaner & Jaipur
3 State Bank of Hyderabad
4 State Bank of Mysore
5 State Bank of Patiala
6 State Bank of Travancore

Private Sector Banks (21 nos.)

1 Axis Bank Ltd.
2 Catholic Syrian Bank Ltd.
3 City Union Bank
4 Development Credit Bank Ltd.
5 HDFC Bank Ltd.
6 ICICI Bank Ltd.
7 IDFC Bank Ltd.
8 IndusInd Bank Ltd.
9 ING Vysya Bank Ltd.
10 Karnataka Bank Ltd.
11 Kotak Mahindra Bank Ltd.
12 Lakshmi Vilas Bank Ltd.
13 Tamilnad Mercantile Bank Ltd.
14 The Dhanalakshmi Bank Ltd.
15 The Federal Bank Ltd.
16 The Jammu & Kashmir Bank Ltd.
17 The Karur Vysya Bank Ltd.
18 The Nainital Bank Ltd.
19 The Ratnakar Bank Ltd.
20 The South Indian Bank Ltd.
21 YES Bank Limited

Foreign Banks (4 nos.)

1 Barclays Bank PLC
2 Bank of Bahrain and Kuwait
3 Deutsche Bank
4 Standard Chartered Bank

Regional Rural Banks (66 nos.)

1 Allahabad UP Gramin Bank
2 Andhra Pradesh Grameena Vikas Bank
3 Andhra Pragathi Grameena Bank
4 Aryavart Gramin Bank
5 Assam Gramin Vikash Bank
6 Baitarani Gramya Bank
7 Ballia Etawah Gramin Bank
8 Bangiya Gramin Vikash Bank
9 Baroda Gujarat Gramin Bank
10 Baroda Rajasthan Gramin Bank
11 Baroda Uttar Pradesh Gramin Bank
12 Bihar Kshetriya Gramin Bank
13 Chaitanya Godavari Grameena Bank
14 Chattisgarh Rajya Gramin Bank
15 Dena Gujarat Gramin Bank
16 Hadoti Kshetriya Gramin Bank
17 Himachal Gramin Bank
18 Jaipur Thar Gramin Bank
19 Jammu & Kashmir Gramin Bank
20 Jharkhand Gramin Bank
21 Karnataka Vikas Grameena Bank
22 Kashi Gomti Samyut Gramin Bank
23 Kaveri Grameena Bank
24 Kerala Gramin Bank
25 Langpi Dehangi Rural Bank
26 Madhya Bharat Gramin Bank
27 Madhya Bihar Gramin Bank
28 Maharashtra Godavari Gramin Bank
29 Maharashtra Gramin Bank
30 Malwa Gramin Bank
31 Meghalaya Rural Bank
32 MGB Gramin Bank
33 Mizoram Rural Bank
34 Nainital – Almora Kshetriya Gramin Bank
35 Narmada Malwa Gramin Bank
36 Neelachal Gramya Bank
37 Pallavan Gramin Bank
38 Pandyan Grama Bank
39 Parvatiya Gramin Bank
40 Pragathi Krishna Grameena Bank
41 Prathama Bank
42 Puduvai Bharathiar Grama Bank
43 Punjab Gramin Bank
44 Purvanchal Gramin Bank
45 Rajasthan Gramin Bank
46 Rewa Siddhi Gramin Bank
47 Rushikulya Gramya Bank
48 Samastipur Kshetriya Gramin Bank
49 Saptagiri Grameena Bank
50 Sarva Haryana Gramin Bank
51 Sarva UP Gramin Bank
52 Satpura Narmada Kshetriya Gramin Bank
53 Saurashtra Gramin Bank
54 Sharda Gramin Bank
55 Shreyas Gramin Bank
56 Sutlej Gramin Bank (SGB)
57 Telangana Gramin Bank
58 Tripura Gramin Bank
59 Triveni Kshetriya Gramin Bank
60 Uttar Bihar Gramin Bank
61 Uttaranchal Gramin Bank
62 Uttarbanga Kshetriya Gramin Bank
63 Vananchal Gramin Bank
64 Vidharbha Kshetriya Gramin Bank
65 Vidisha Bhopal Kshetriya Gramin Bank
66 Wainganga Krishna Gramin Bank

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