Lack of access to affordable business financing is a challenge that many Micro, Small, and Medium-sized Enterprises (MSMEs) face in India. The majority of these businesses lack the assets to provide as collateral. To address this challenge, the government of India launched the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

The CGTMSE loan scheme offers a collateral-free MSME loan of up to ₹10 crore. The scheme secures lenders (Banks and NBFCs) with a guarantee, and encourages them to provide loans to micro and small businesses. In this blog, we will understand everything about the CGTMSE loan eligibility, coverage and how to apply.

What is CGTMSE?

CGTMSE stands for Credit Guarantee Fund Trust for Micro and Small Enterprises. It is a loan scheme that has been established in collaboration with the Ministry of MSME, Government of India and the Small Industries Development Bank of India (SIDBI) to offer business loans to MSMEs.

Under the scheme, banks and NBFCs (Non-Banking Financial Companies) provide business loans without any guarantee or collateral. If the MSME fails to repay the loan, the trust covers the guaranteed portion of the outstanding amount for the lender.

How does the CGTMSE Guarantee Cover Work?

The CGTMSE offers guaranteed coverage (75-85%) for loans to strengthen credit delivery. The CGTMSE coverage varies with the loan size as well as the borrower category.

Category	Maximum Extent of Guarantee Coverage
	Up to ₹5 lakh	From ₹5 lakh to ₹50 lakh	From ₹50 lakh to ₹10 crore
Micro Enterprises	85%	75%	75%
MSEs (North East Region, Ladakh and Jammu & Kashmir)	80%	75%	75%
Women Entrepreneurs	90%
SC/ST Entrepreneurs	85%
All other categories of borrowers	75%

This guarantee cover ensures that even if the business fails to repay the loan, the bank will recover nearly the total amount under CGTMSE. Hence, the lender remains assured when it approves a collateral-free MSME loan under this program.

CGTMSE Loan Eligibility Criteria

Here is the CGTMSE loan eligibility criteria you must meet in order to apply for a business loan with NBFCs and banks:

• New and existing small and medium-sized enterprises.
• Manufacturing and service businesses.
• All trading firms, as long as they are under the MSME definition.
• A loan can be taken only from banks, NBFCs, or financial institutions that are listed with CGTMSE.
• The borrower should be over 18 years old.
• Firms already supported by other state or national schemes can also benefit.
• Any activities that fall under the service sector according to the MSMED Act, 2006, are eligible.
• Income Tax Permanent Account Number (IT PAN) is required when the amount of the loan is more than ₹5 lakh.
• Udyam Registration Number
• Viable and profitable business with a good track record.

How Does the CGTMSE Scheme Work?

The CGTMSE scheme offers loans in collaboration with lenders. Here’s how it works:

• A borrower approaches a registered lender.
• The lender verifies the borrower’s documents, business plan, and repayment capacity.
• If eligible, the lender approves the loan without requesting collateral.
• The lender then approaches CGTMSE to subsidise this loan under the guarantee scheme.
• After approval, the borrower pays an Annual Guarantee Fee (AGF), and the loan is disbursed to the company’s account.

In case the borrower defaults, CGTMSE reimburses the lender a considerable portion of the defaulted loan. This reduces the financial burden on the lender as well as the entrepreneur.

Benefits & Drawbacks of CGTMSE

Here are some of the benefits and drawbacks of the GGTMSE scheme:

Benefits of CGTMSE

• No Collateral Required: You don’t have to provide your property, land, gold, or any other valuable asset as collateral to avail a loan.
• Covers Multiple Industries: The scheme covers manufacturing, trading, service, and more businesses.
• Large Loan Amount: The scheme offers loans of up to ₹10 crore to help you grow, invest in equipment, or meet working capital needs.
• Special Support for Women and Weaker Sections: Women entrepreneurs, SC/ST entrepreneurs, and businesses in backward regions can get higher coverage.

Drawbacks of CGTMSE

• Limited to Registered Institutions: Only CFTMSE-approved banks and NBFCs can offer collateral-free MSME loans.
• Guarantee Fee and Annual Charges: The borrowers need to pay an annual guarantee fee and other charges, which can increase the cost of borrowing.
• Partial Coverage: The scheme covers only 75% to 85% of the amount.
• Documentation Required: Borrowers must provide proper registration, approvals, accounts, and a business plan.
• Limited Sectoral Accessibility: The scheme doesn’t offer cover to agriculture, self-help groups or joint liability groups.

How to Apply for the CGTMSE Scheme?

Here is how you can apply for the CGTMSE loan scheme:

1. Register Your Company: Register your company with GST, Udyam and MSME.
2. Find an Eligible Lending Institution: Go to a bank, non-banking financial company (NBFC) or financial institution registered under CGTMSE as a Member Lending Institution (MLI).
3. Gather Documents: Get the necessary documents ready:
   1. Loan application form.
   1. Business registration and Udyam Registration Certificate.
   1. Promoters’ identity and address documents.
   1. IT PAN for loans of over ₹5 lakh.
   1. Detailed business plan and financial statements.
4. Submit Loan Application: Submit all the documents needed along with your business plan. Send the loan application and supporting documentation to the MLI.
5. Lending Institution Requests CGTMSE Guarantee: After the MLI approves the loan, they will submit your application to CGTMSE to cover the credit guarantee via their online portal or authorised channels.
6. Pay Guarantee Fees: Pay the lending institution an annual guarantee fee based on the amount of the loan, which is paid to CGTMSE to issue the guarantee.
7. Loan Disbursement: When CGTMSE approves the guarantee, the loan is disbursed without collateral or third-party guarantees.

The CGTMSE Loan Scheme is ideal for every business that doesn’t have assets to pledge for an MSME loan. It reduces the risk of rejection and encourages seamless access to funds. When you apply for a business loan, ensure that you meet the eligibility criteria and upload all the correct documents.

Frequently Asked Questions (FAQs)

1. What is the highest amount of loan sanctioned under CGTMSE?

As an MSME, you can apply for a collateral-free MSME loan of up to ₹10 crore under the CGTMSE loan scheme.

2. Is 100% of the loan insured under CGTMSE?

No, Credit Guarantee Fund Trust for MSME offers a guarantee cover of up to 85% based on the category type.

3. Who is eligible for a collateral-free MSME loan under CGTMSE?

Here are all the businesses that are eligible for MSME loans under CGTMSE:

• New and old micro and small businesses involved in manufacturing, trading or services.
• Women entrepreneurs.
• SC/ST entrepreneurs.

4. Do traders also fall under CGTMSE?

Yes, the CGTMSE scheme offers loans to trading companies, as well.

5. What documents do I need to apply for?

Here are the documents required for the CGTMSE loan application:

• Udyam Registration Certificate
• Aadhaar card
• Utility bills, rental agreement
• IT PAN

6. Are there any fees or costs associated with CGTMSE?

Yes, you need to pay an Annual Guarantee Fee and other service charges as charged by the lender.

7. Can I apply for a loan directly with CGTMSE?

No, you can apply for a collateral-free MSME loan only through a CGTMSE-registered bank or NBFC.

8. Is CGTMSE coverage greater for women entrepreneurs?

Yes, women entrepreneurs get higher coverage than male entrepreneurs and other category types.

9. How fast is the CGTMSE loan approved?

The exact time will depend on the lender, but in general, it takes a week or two after verification.

10. Can existing loans be converted into CGTMSE loans?

No, you cannot cover a previous or already existing loan under the CGTMSE loan. You can only apply for new and fresh loans under the scheme.