Modified Scheme to Boost Startup Credit and Innovation with Enhanced Guarantee Cover

The Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has notified the expansion of the CGSS which increases the ceiling on guarantee cover per borrower under the Scheme from Rs. 10 crore to Rs. 20 crore. The extent of guarantee cover provided has also been increased to 85% of the amount in default for loan amount up to Rs. 10 crore and 75% 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% p.a. from 2% p.a. 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.

In line with the vision of the Prime Minister Shri Narendra Modi of transforming India into an innovation-driven self-reliant economy, 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 expanded Scheme will further reduce the perceived risks associated with lending to startups in established financial institutions, enabling greater financial flow and runway for startups to undertake research and development (R&D), experimentation, and create cutting-edge innovation and technologies.

Several operational reforms and other enabling measures identified through consultations with the startup ecosystem have also been included in the expanded CGSS to make the Scheme attractive for lenders and startups seeking funding support. The expansions and modifications are expected to give thrust to the Scheme and enable a wider range of startups to benefit to propel the country towards becoming a Viksit Bharat.

The Hon’ble Prime Minister launched the Startup India initiative along with an Action Plan for Startups on 16^th January 2016 to create a vibrant startup ecosystem in the country. In line with the Action Plan for startups, the Government had approved and notified the ‘Credit Guarantee Scheme for Startups (CGSS)’ on 6th October 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).

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

The notification for the Scheme along with other details can be accessed at: https://www.ncgtc.in/en/product-details/CGSS/Credit-Guarantee-Scheme-for-Start-ups-(CGSS)

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Abhishek Dayal/Abhijith Narayanan

Credit guarantee expansion boosts startup loan availability with higher coverage and lower annual fees for key sectors. Notification expands the Credit Guarantee Scheme for Startups (CGSS) by raising the maximum guarantee ceiling per borrower and adjusting guarantee cover rates to increase access to collateral-free debt funding. The Annual Guarantee Fee is reduced for startups in 27 Champion Sectors to enhance affordability. The changes aim to lower perceived lending risk for banks, AIFs and NBFCs, stimulate lender participation, and support working capital, term loans and venture debt to promote R&D and innovation among startups.