Government to Provide Collateral-Free Loans to Start-ups under CGSS Framework

The Union Ministry of Commerce and Industry’s Department for Promotion of Industry and Internal Trade (DPIIT) has notified the credit guarantee scheme for start-ups for providing collateral-free loans. As per the DPIIT notification, loan/debt facilities sanctioned to an eligible borrower on or after October 6 would be covered under the scheme.

Under this scheme, borrowers will get a maximum guarantee cover per borrower of Rs 10 crore. The DPIIT also mentioned the credit facility being covered under this scheme should not be covered by any other guarantee scheme.

The notification read, “The Central Government has approved the ‘Credit Guarantee Scheme for Startups (CGSS)’ for the purpose of providing credit guarantee to loans extended by member institutions (MIs) to finance eligible borrowers being startups.” MIs comprise financial intermediaries such as banks, financial institutions, NBFCs and AIFs in the lending or investment space.

Eligibility criteria for availing collateral-free loans under the Credit Guarantee Scheme for Startups (CGSS)

• Start-ups that have reached the stage of stable revenue over a 12-month period as assessed by audited monthly statements.
• Start-ups should be amenable to debt financing as an option.
• No default to any lending/investing institution
• Not classified as a non-performing asset (NPA) according to RBI guidelines

Trust or fund to be set up for Credit Guarantee Scheme for Start-ups (CGSS)

Central government will set up a trust or fund to guarantee payment against default in loans or debt extended to eligible borrowers. The Board of National Credit Guarantee Trustee Company will manage the trust or fund as the Trustee of the Fund. Lending institutions will have to closely monitor the borrower accounts and evaluate credit applications.

They also have to select commercially viable proposals with due diligence and conduct accounts of the borrowers. The DPIIT will also constitute a Management Committee to oversee the trust’s affairs. This committee will review, supervise and monitor the trust’s functioning and provide guidance on broader policy matters related to the scheme.