In order to venture into any business, the most important thing is capital, the availability of funds. Lack of adequate funding is normally a hindrance for most aspiring entrepreneurs. Some of them start their businesses but face a fund crunch after a short period of time. Moreover, it is not as easy to obtain loans from banks as it once used to be.
The start-up sector, most recently, received a much-needed push from the Government of India with the formulation of the Credit Guarantee Scheme for Startups with a contribution of Rs. 2,000 crore. The scheme is part of the Startup India action plan and will thus allow startups to avail loans for their businesses without any collateral.
Features of the Credit Guarantee Scheme for Startups
- The startup has to be recognised by the DIPP (Department of Industrial Policy and Promotion) in order to be eligible for the credit guarantee.
- The guarantees will be offered based on portfolios, and these portfolios will consist of at least 10 startup loans for a particular financial year.
- The credit guarantee offered will be inclusive of any other assistance (Venture capital, working capital, debentures, optionally convertible debt, term loans etc.) and will be offered up to the amount of Rs. 5 crore to every eligible startup.
- The coverage offered by the scheme is as follows –
a. The scheme will be providing credit to cover up to 75% of the credit facility subject to a ceiling of Rs. 150 lakh.
b. Where loans of less than Rs. 5 lakh are granted to micro-enterprises, the scheme covers upto 85% of the credit facility.
c. MSMEs operated or owned by women and all loans granted to NER (North-East Region) including Sikkim will have up to 80% of the credit facility covered by this scheme.
d. 50% of the amount of credit for MSME retail trade will be covered under this scheme, subject to a ceiling of Rs. 50 lakh.
Pre-requisites of CGSS
- To fulfil the KYC norms –
a. For all resident partners or directors – Aadhaar is compulsory.
b. For all non-resident partners or directors – passport number.
- The management of the National Credit Guarantee Trust Company will oversee the functioning of the scheme and set the terms and rules for its functioning as it sees fit.
- For the startups that are eligible under this scheme, the member lending institutions will offer a guarantee of up to Rs. 500 lakh. There is no need for any collateral security.
- A Management Committee shall be formed in order to oversee and monitor the Credit Guarantee Scheme for MSMEs.
- A Risk Evaluation Committee shall be formed so as to take up and address any conflicts of interest that may arise in any given case.
Member Lending Institutions
The list for Member Lending Institutions stands at 144 currently. This includes:-
- Public Sector Banks
- Private Sector Banks
- Regional Rural Banks
- Foreign/MNC Banks
- Non-Banking Financial Institutions
- Lending Institutions
- Small Finance Banks
- Scheduled Urban Co-operative Banks
The Regional Rural Banks have to be categorised as ‘Sustainable Viable’ by NABARD.
Fees Under CGSS
Composite Annual General Fee
1% of the credit amount p.a.
Guarantee Fee for credit amounts up to Rs. 5 lakh
Guarantee Fee for credit amounts over Rs. 5 lakh and below Rs. 100 lakh