In a significant move to bolster India’s startup ecosystem, the government has expanded the Credit Guarantee Scheme for Startups (CGSS), doubling the maximum loan guarantee cap from ₹10 crore to ₹20 crore per borrower. This initiative aims to enhance access to collateral-free debt funding for startups, particularly in sectors identified under the ‘Make in India’ program.
Key Highlights of the Revised CGSS
- Increased Guarantee Cover: The scheme now offers an 85% guarantee for loans up to ₹10 crore and a 75% guarantee for loans exceeding ₹10 crore.
- Reduced Annual Guarantee Fee (AGF): Startups operating in 27 ‘Champion Sectors’ will benefit from a reduced AGF of 1% per annum, down from the previous 2%.
- Effective Date: The revised scheme came into effect on May 8, 2025, superseding the earlier notification dated October 6, 2022.
Champion Sectors Under ‘Make in India’
The 27 identified Champion Sectors encompass both manufacturing and services, including:
- Manufacturing: Aerospace and defence, automotive components, pharmaceuticals, biotechnology, chemicals, electronics.
- Services: Information Technology (IT), tourism, medical value travel, audio-visual services.
These sectors are pivotal to India’s vision of becoming a self-reliant and innovation-driven economy.
Impact on the Startup Ecosystem
The expansion of the CGSS is expected to:
- Enhance Credit Access: By providing higher guarantee covers, startups can secure larger loans without collateral, facilitating growth and innovation.
- Reduce Lending Risks: The increased guarantee percentages lower the risk for financial institutions, encouraging them to extend credit to startups.
- Promote Sectoral Growth: The reduced AGF in Champion Sectors aims to stimulate development in areas critical to national interests.
According to the Department for Promotion of Industry and Internal Trade (DPIIT), these changes are designed to “reduce the perceived risks associated with lending to startups,” thereby increasing the overall fund flow for startups to undertake research and development, experimentation, and create cutting-edge innovation and technologies.
Background of the CGSS
Launched on October 6, 2022, the CGSS was established to provide collateral-free debt funding to startups through various financial instruments, including working capital, term loans, and venture debt. The scheme is part of the broader Startup India initiative, which commenced on January 16, 2016, aiming to create a robust startup ecosystem in the country.
Conclusion
The government’s decision to double the loan guarantee cap under the CGSS reflects its commitment to nurturing the startup ecosystem in India. By easing access to credit and reducing associated costs, the revised scheme is poised to empower startups to innovate, scale, and contribute significantly to the nation’s economic growth.
