Access to finance is one of the biggest challenges faced by Micro and Small Enterprises (MSEs) in India. Many MSMEs struggle to get bank loans due to the lack of collateral or third-party guarantees. To solve this problem, the Government of India introduced the Credit Guarantee Fund Trust for Micro and Small Enterprises – CGTMSE scheme
CGTMSE plays a crucial role in improving credit flow to MSMEs by enabling collateral-free loans, helping small businesses grow, expand, and generate employment.
What is CGTMSE Scheme?
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a government-backed scheme jointly set up by:
- Government of India
- Small Industries Development Bank of India (SIDBI)
The scheme provides a credit guarantee to banks and financial institutions for loans given to eligible Micro and Small Enterprises without any collateral or third-party guarantee.
Simply put, CGTMSE reduces the risk for lenders, making it easier for MSMEs to obtain business loans.
Objective of CGTMSE Scheme
The primary objectives of CGTMSE are:
- To promote collateral-free lending to MSMEs
- To encourage banks to lend to first-time entrepreneurs
- To improve financial inclusion for small businesses
- To support Make in India and employment generation
Key Benefits of CGTMSE for MSMEs
CGTMSE offers several advantages to micro and small businesses:
✅ Collateral-Free Loans
No need to pledge property, machinery, or personal assets.
✅ Higher Loan Accessibility
Banks are more willing to lend as the loan is partially guaranteed by CGTMSE.
✅ Loan Coverage up to ₹10 Crore
Eligible MSMEs can avail loans up to ₹10 crore under the scheme.
✅ Support for New & Existing Businesses
Both new enterprises and existing MSMEs can benefit.
CGTMSE Guarantee Coverage
The guarantee coverage depends on the type of borrower and loan amount:
- Micro Enterprises: Up to 85% for loans up to ₹5 Lakh.
- Women/SC/ST/ZED Certified Units: Up to 85% coverage.
- Standard Category: Generally 75% coverage for loans up to ₹10 Crore.
- Aspirational Districts/NER: Enhanced coverage of up to 80-85%.
Annual Guarantee Fee (AGF)
The fee structure has been simplified to reduce the cost of borrowing. Fees can start as low as 0.37% per annum for small loans, with specific slabs depending on the loan size and the lender’s risk rating.
Eligibility Criteria for CGTMSE Scheme
To avail CGTMSE benefits, MSMEs must meet the following conditions:
- Must be a Micro or Small Enterprise (as per MSME classification)
- Should be engaged in manufacturing or service activities
- Must have a Udyam Registration
- Loan should be availed from a CGTMSE-member lending institution
- No collateral or third-party guarantee should be offered
How to Apply for a CGTMSE Loan: Step-by-Step
The application process is handled through Member Lending Institutions (MLIs), which include most public/private banks, RRBs, and selected NBFCs.
- Prepare a Business Plan: Detail your project, financial projections, and how the funds will be used.
- Approach an MLI: Visit your nearest bank branch that is registered with CGTMSE.
- Loan Sanction: The bank will evaluate your business’s viability. If they approve, they will sanction the loan without asking for collateral.
- Guarantee Application: The bank (not the borrower) applies to the CGTMSE Trust for guarantee cover.
- Fee Payment: Once the guarantee is approved, the borrower pays the required guarantee fee, and the loan is disbursed.
Types of Loans Covered Under CGTMSE Scheme
CGTMSE covers various credit facilities such as:
- Term Loans
- Working Capital Loans
- Composite Loans
- Fund-based credit facilities
Both new loans and incremental credit to existing MSMEs are eligible.
Common Myths About CGTMSE Scheme
❌ CGTMSE is a direct loan scheme
✔️ No, it is a credit guarantee scheme
❌ All MSMEs automatically get CGTMSE benefits
✔️ Bank approval is mandatory
❌ No documentation is required
✔️ Standard bank loan documentation applies
🔔 MSME Bytes Tip
Before applying for a CGTMSE-backed loan, ensure your Udyam Registration, GST compliance, and financial statements are updated to improve approval chances.