Credit Guarantee Scheme, Ultimate Loan Scheme In 2023.

Credit guarantee scheme

In the last five years since the introduction of GST 1,40,00,000 businesses have registered for GST, this is a milestone figure for the government. In the last five years, more than 92 lakh new businesses have registered under GST which is 75% of the total sum. The majority of these new businesses that have registered in the last five years mostly consist of micro and small businesses. 

The government is paying attention to potential micro and small businesses to improve the economy of the country, to promote this entrepreneurial drive the government is establishing well-organized capital facilities which are collateral-free as well as the cheapest annual guarantee fee. These capital facilities materialize in the form of loans and guarantee schemes, credit guarantee scheme is one such scheme.

These loans and grant schemes are here for all new as well as established business owners and their purpose is the fill the capital credit gap which a lot of business owners face. 

One of the most popular schemes is the Credit guarantee fund scheme for micro and small enterprises. credit guarantee scheme has the highest limit of coverage up to Rs.5 Cr as per the latest policy released on 1st April 2023.

In the article below we will be giving information about credit guarantee fund schemes for micro and small enterprises and cover all the bullet points mentioned below.

Details about the credit guarantee fund scheme for micro and small enterprises
Eligibility 
List of businesses that are not eligible.
Required documents
Final Thoughts and Conclusion
silent Features of the Credit guarantee scheme

Table of Contents

What are credit guarantee fund schemes for micro and small enterprises or CGMSE?

As we saw in the data above in the last five years more than 92 lakh new businesses have entered the taxpayer’s bracket but this number is very small compared to 2.6 Cr. Which is the number of micro and small businesses both registered and unregistered. 

Micro and small businesses employ more than 6 Cr people and have a lion’s share in the manufacturing and the nation’s total export. 

Micro enterprises are becoming a lifeline for India’s developing economy. Taking into consideration the huge impact the sector has on the Indian economy the government of India introduced the CGSMSE on 30th August, 2000. 

The motto to introduce this scheme was to make credit facilities more excisable to first-generation entrepreneurs under this scheme in 2023 alone credit facilities were availed to more than 11 lakh Businesses. 

Credit guarantee scheme home page

Details about the Credit Guarantee Scheme

The CGS-MSE scheme aims to facilitate the flow of credit to MSEs by providing credit guarantee cover to banks and financial institutions (FIs) that lend to these enterprises. The government set up the Credit Guarantee Fund Trust for Micro & Small Enterprises (CGTMSE) to manage the scheme.

Under the CGS-MSE scheme, eligible MSEs can avail of credit facilities up to a maximum limit on a ceiling of Rs. 5 Crore  (50 million) with additional collateral-free guaranteed credit. The government has increased the upper limit from Rs. 2 crore (20 million) to Rs. 5 crore (50 million) in March 2023. This increase in credit deliveries will benefit a large number of MSEs as it has provided them with increased access to credit.

Even if you have any other loan outstanding, you can still apply for loans under this scheme. 

To make this scheme feasible the government has also lowered the Annual guarantee free percentage from 2% to 0.37%  Via notification (give external link)

Eligibility  For Credit Guarantee Scheme.

Under the Credit Guarantee Scheme for Micro and Small Enterprises (CGS-MSE) in India, all new and existing micro and small enterprises (MSEs) engaged in manufacturing or service activities are eligible to apply for credit facilities without collateral or third-party guarantees.

However, there are some specific criteria for eligibility. The key eligibility criteria for MSEs to avail of the credit guarantee scheme are as follows:

They should register the enterprise as a sole proprietorship, partnership, private limited company, limited liability partnership (LLP), or any other legal entity under the relevant laws of India.
The enterprise should be engaged in manufacturing or service activities, including small and medium enterprises in rural areas.
The enterprise should not be engaged in retail trade, educational institutions, self-help groups (SHGs), training institutions, or any other activities that are not eligible under the scheme.
The enterprise should not have defaulted on any loans from any bank or financial institution in the past.
The enterprise should not have been declared as a non-performing asset (NPA) by any bank or financial institution in the past.
It is important to note that the eligibility criteria may vary depending on the specific guidelines and rules laid down by the lenders and the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). MSEs are advised to carefully review the eligibility criteria and guidelines before applying for credit facilities under the CGS-MSE scheme. Its also important to mention that if the businesses have properly maintained their accounting and bookkeeping the eligibility of the businesses strengthens.

List of businesses that are not eligible under the Credit guarantee scheme.

following is the list of businesses that are not eligible for the credit guarantee scheme 

Retail trade
Educational institutions
Self-help groups (bachat gat) 
Training institutions
Agro-businesses

Documents required for credit guarantee scheme

Following are the documents required for applying for a Credit guarantee scheme

Letter of guarantee: After the eligible lender (bank/FI) approves the loan to the MSE, it applies to CGTMSE for the credit guarantee cover. If the application is approved, CGTMSE issues a letter of guarantee to the lender.
The letter of guarantee specifies the amount of credit guarantee cover provided by CGTMSE.
Claim form: In case of default by the MSE, the eligible lender has to file a claim with CGTMSE for the credit guarantee cover. The lender has to submit a claim form along with supporting documents to CGTMSE. The claim form contains details such as the name of the borrower, loan account number, amount claimed, and reasons for default.
Supporting documents: The eligible lender has to submit various supporting documents along with the claim form to substantiate the claim. The supporting documents may include the loan agreement, security documents, correspondence with the borrower, demand notices, legal notices, court orders, and other relevant documents.
Undertaking: The eligible lender has to provide an undertaking stating that it has complied with the terms and conditions of the credit guarantee scheme and has followed the due diligence process before granting the loan to the MSE.

For more detailed information, visit the CGSMSE website. 

Conclusion

The Government of India is seeing the potential the micro and small business sector has and is making an effort to develop this sector. If you are a business owner, this is the right time to start availing loans under these schemes. As a business owner also looks into loans and schemes by state-level institutions like Delhi financial corporation, Kerala Financial Corporation, etc. 

Whichever schemes or loans you apply for if you have sophisticated and well-maintained accounting, your chances of availing of the loans become higher. As a business owner, you can use accounting software like ProfitBooks. 

ProfitBooks is a software that is made with business owners in mind, hence even a person with no prior knowledge in accounting can use the software for their accounting needs.

Profitbooks also offer a “Forever Free plan” for startups so that you can maintain your books without a heavy capital investment. 

Check out the ProofitBooks website and sign in for a “forever free plan” today!  

FAQ

How can businesses apply for a Credit Guarantee Scheme?
Businesses can typically apply for a Credit Guarantee Scheme through participating banks or financial institutions. They will need to submit the necessary documentation, such as financial statements, business plans, and collateral details, as required by the specific scheme’s guidelines.

What types of loans are covered by Credit Guarantee Schemes?
Credit Guarantee Schemes often cover various types of loans, including working capital loans, term loans, equipment financing, and trade finance. The specific coverage may vary depending on the scheme’s guidelines and objectives.

Is there a fee associated with Credit Guarantee Schemes?
Yes, there is usually a fee or premium charged to businesses participating in a Credit Guarantee Scheme. This fee helps cover the administrative costs of the scheme and the risk coverage provided by the guarantor. The fee amount is typically a percentage of the loan amount or an annual premium.

How long does the guarantee under a Credit Guarantee Scheme last?
The duration of the guarantee provided by a Credit Guarantee Scheme varies depending on the scheme’s terms. It can range from a few months to several years, depending on the nature of the loan and the scheme’s guidelines.

Are Credit Guarantee Schemes limited to domestic lenders and borrowers?
Credit Guarantee Schemes can be designed to support domestic lenders and borrowers, but they can also be extended to international transactions. Some schemes allow for cross-border financing, facilitating trade and business activities between countries.

Also, Read:

Mudra loans- Pradhan Mantri Mudra Yojana (PMMY) 2023.
How to get working capital loans in India.
How to record loan transactions.
Everything you need to know about MSMS udyam registrations. (Earlier know as udyog Addhar)
Startup India: Startup India Action plan, Eligibility & scheme details.
10 Funding options to raise startup capital for your business.