MSME Credit Guarantee Scheme: Eligibility, Guarantee Fee, Limit, Benefits, How To Apply

Budget 2025 Update

In the Union Budget 2025, the government announced an enhanced CGTMSE scheme. It doubles the guarantee for micro and small enterprises from Rs.5 crore to Rs.10 crore — unlocking Rs.1.5 lakh crore in extra credit over five years. The scheme doubles the guarantee cover for startups from Rs.10 crore to Rs.20 crore with a nominal 1% fee. It also offers term loan cover of up to Rs.20 crore for well-managed exporter MSMEs.

The Budget 2025, presented by Finance Minister Nirmala Sitharaman, gave special attention to Micro, Small, and Medium Enterprises (MSMEs), especially those in the manufacturing sector. It formulated a package to cover technology support, financing, and regulatory changes for MSMEs to help them grow and compete globally. One of the measures taken for MSMEs was the introduction of a new credit guarantee scheme to facilitate term loans to them.

Continue reading to find out all about the MSME credit guarantee scheme, eligibility, and benefits.

What Is MSME Credit Guarantee Scheme?

The MSME credit guarantee scheme, approved on January 29, 2025, helps MSMEs secure term loans for machinery and equipment without collateral. It offers 60% guarantee coverage to Member Lending Institutions (MLIs) for loans up to ₹100 crore, through the National Credit Guarantee Trustee Company Limited (NCGTC). The scheme creates a self-financing guarantee fund combining MSME credit risks, with guarantees for loans over ₹100 crore.

During the post-budget press conference, the Finance Minister shared that the scheme was inspired by MSMEs, who need both working capital and investment funds. A working group, led by the RBI’s chief economic advisor and credit guarantee bodies, contributed to the proposal.

Purpose Of MSME Credit Guarantee Scheme

The term loan and guarantee cover under the MSME credit guarantee scheme will play a vital role in modernising the MSME manufacturing sectors by enabling MSMEs to invest in advanced infrastructure and technologies. This scheme will also help MSMEs grow and compete globally. 

MSME Credit Guarantee Scheme Eligibility

As per the Budget 2024 speech, all MSMEs in the manufacturing sector requiring term loans to purchase equipment and machinery are eligible for the credit guarantee scheme. The government has yet to release the detailed guidelines of this scheme.

Guarantee Fee For MSME Credit Guarantee Scheme

The MSME credit guarantee scheme is self-financing, requiring MSMEs to pay an upfront guarantee fee and an annual top-up fee based on the remaining loan balance. The corpus is sustained by pooling these fees. The government will provide a second-level backstop guarantee if defaults surpass a specified threshold.

Maximum Credit Limit Of MSME Credit Guarantee Scheme

The MSME credit guarantee scheme will provide a maximum guarantee cover of Rs.100 crore, irrespective of the loan amount. Thus, the loan amount can be higher, but the guarantee cover limit will only be up to Rs.100 crore.

How To Apply For MSME Credit Guarantee Scheme?

The application process for the MSME credit guarantee scheme will be provided in the detailed guidelines of the scheme. However, the government has yet to release the detailed guidelines of the MSME credit guarantee scheme announced in the Budget 2024.

Benefits Of MSME Credit Guarantee Scheme

The MSME credit guarantee scheme aims to modernize India’s MSME sector and support its manufacturing environment, helping India emerge as a global manufacturing powerhouse. By offering collateral-free term loans and guarantee coverage for purchasing machinery, the scheme will strengthen MSME networks and drive innovation and growth across the supply chain.

This initiative enhances financial security for MSMEs, enabling technological advancement and boosting competitiveness. It will play a key role in fortifying India’s manufacturing ecosystem, contributing to the country’s development.

Targeting India’s 63 million MSMEs, especially in the manufacturing sector, the scheme supports small businesses, vital for the nation’s GDP growth and overall progress.