The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a trust launched by the Ministry of Micro, Small & Medium Enterprises, Government of India and the Small Industries Development Bank of India(SIDBI).
This scheme was launched on 30 August, 2000 with an objective to give a credit guarantee to the institutions that provide business loans to MSMEs.
It aims to encourage entrepreneurs to take collateral free loans for starting businesses without the fear of defaulting.
WHAT IS CREDIT GUARANTEE ?
Credit guarantee refers to a situation where the loan to the applicant is backed by a party without the need for any external collateral or third party guarantee. Under the CGTMSE scheme, MSMEs both new and old including service enterprises are eligible for a maximum credit cap of Rs. 2 crores.
FEATURES OF CREDIT GUARANTEE SCHEME
The main features of CGTMSE scheme are –
- Guaranteed repayment of 75% or 85% in some cases for the defaulted principal loan amount up to Rs.50 lakh.
- The maximum guarantee is 50% for loan amount greater than Rs.50 lakh but under Rs.1 crore.
- Provides for 85% repayment for loans up to Rs.5 lakhs to micro-enterprises.
- The guarantee amount for repayment is 80% of the loan amount in case the MSME is promoted by a woman or the location of the unit is in the North East Region (NER).
ELIGIBILITY CRITERIA FOR THIS SCHEME
The entities and institutions that are eligible to avail loans under CGTMSE scheme are as follows:
- LENDING INSTITUTIONS :- It includes :-
- Scheduled Commercial Banks (SCBs)
- Regional Rural Banks (RRBs)
- Small Finance Banks (SFBs)
- Non-banking Financial Companies (NBFCs)
- Small Industrial Development Bank of India (SIDBI)
- National Small Industries Corporation (NSIC)
- North Eastern Development Finance Corporation Ltd. (NEDFi)
- LENDING BORROWERS :- The CGTMSE coverage is conditional to all new and existing SMEs:
- The maximum credit facility is Rs.50 lakhs for a guarantee cover not exceeding Rs. 62.50 lakhs / Rs.65 lakhs.
- For credit facility above Rs.50 lakhs, the guarantee cap is limited to Rs. 1 crore.
- Term credit for the entire outstanding amount on the date the loan is declared to be an NPA or on the date of filing a suit.
However, Educational institutions, agriculture, training institutions, and Self-Help Groups (SHGs) are not eligible for guarantee cover under CGTMSE. The CGTMSE loan limit depends on the applicant’s profile and business requirements.
HOW TO AVAIL LOAN UNDER CGTMSE SCHEME ?
The steps to avail a loan under this scheme are listed below –
- BUSINESS ENTITY FORMATION – The borrower first has to incorporate a private limited company, one person company, proprietorship, or a limited liability company and obtain all the necessary approvals and tax registrations for it.
- BUSINESS PLAN – Borrowers need to conduct a market analysis and prepare a business plan containing relevant information, such as business model, promoter profile, projected financials, etc and this report is then presented to the credit facility.
- SANCTION FOR BANK LOAN – Once the business report and plan is under review, the lender analyses the feasibility of the business as per his policy. If everything seems fine, the loan application is approved, and the loan is sanctioned.
- OBTAINING THE GUARANTEE COVER – After according sanction to the loan, it is responsibility off the lender to file for guarantee cover at the CGTMSE.
Thus, in a nutshell, CGTMSE is a scheme which aims to provide credit guarantee to the financial institutions that provide loans to SMEs and MSMEs and also enables an individual to avail credit facility even if he has no or minimum business experience.