Small businesses often need additional capital or money to keep their business operational. To fulfill this requirement, they look for loans. The accessibility of these loans demands the possession of necessary assets that serve as collateral security. This is where the Credit Guarantee Scheme comes into picture.
The Credit Guarantee Scheme allows MSMEs collateral-free loans up to ₹1 crore. This credit ensures a smoother functioning of businesses and prevents the firm from a downfall.
How does an MSME benefit from this scheme?
Under the Credit Guarantee Scheme, an MSME can avail credit above ₹100 lakhs with a maximum guarantee of ₹50 Lakhs. In addition to this, the firm also receives:
- Quick and hassle-free loans sanctioned by SIDBI
- Low rates of interest
- No elaborate paperwork
- No pledging of assets/No collateral security
Guarantee required for the loan is dependent on the size and nature of the business. Details are as follows:-
|Nature of the business||Percentage|
|Micro Enterprises||85% of the default amount where credit facility is limited to ₹5 lakhs|
|Women entrepreneurs and businesses in North East India||80% of the default amount where credit facility is limited to ₹50 lakhs|
|Other borrowers||75% of the default amount where credit facility is limited to ₹50 lakhs|
|Other borrowers||50% of the default amount where credit facility is limited to ₹50 – ₹100 lakhs|
What is the eligibility criteria for this scheme?
All MSMEs except those in retail trade, educational institutions, agriculture, self-help groups, and training institutions are eligible borrowers for this scheme.
- Under this scheme guarantee is given to member lending institutions and not to MSMEs. You, as an MSME entrepreneur would have to approach your bank with your business proposals for credit
- Eligible lending institutions or member lending institutions (MLI):- All Scheduled Commercial Banks, selected Regional Rural Banks, selected State Financial Corporations like SIDBI are entitled to avail guarantee cover in respect of their eligible credit facilities under the scheme.
How can Banks and Financial Institutions apply for this scheme?
Banks and Financial Institutions can apply for this scheme in the following ways:
- MLIs should apply online for guarantee cover for eligible cases sanctioned by them. This application should be submitted by the end of the subsequent quarter of Loan.
- The online application is approved by CGTMSE if it meets the eligibility criteria of the scheme. On successful approval of application, a CGPAN is generated which is unique to the credit facility sanctioned. (For term loans and working capital loans)
- An Annual Guarantee Fee (AGF) is generated and can be seen online by MLIs. This fee is payable by the end of the day as per the applicable rate.
- The AGF is payable within 30 days of its generation or first disbursement of loan by MLI, whichever is later.
- When the MLIs receive the demand advice from CGTMSE they are required to allocate such demands by ticking against the correct CGPAN. After such allocation, an RP number is generated.
- MLIs should then forward the demand of AGF by a Demand Draft along with a covering letter that indicates the RP number to CGTMSE.
- CGTMSE then sends the draft to IDBI bank for realization. When the draft is realized the amount gets appropriated and guarantee starts.
- MLIs can then verify the commencement of guarantee from CGTMSE portal by accessing the ‘Report and MIS’ section and choosing ‘CGPAN history’ from ’Application Related Reports’.
Banks can apply for the scheme by clicking here.
Which are the documents required to apply for this scheme?
The MSME can check with their MLI for details of documents required.