CGTMSE Scheme: Collateral-Free MSME Loan Guide

The CGTMSE scheme enables micro and small enterprises to access collateral-free business loans through banks and NBFCs. Learn about eligibility, loan limits, guarantee coverage, fees, benefits, and the complete application process.
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March 06, 2026

The CGTMSE scheme (Credit Guarantee Fund Trust for Micro and Small Enterprises) is a Government of India initiative that facilitates collateral-free business loans for MSMEs.

Launched by the Ministry of MSME in collaboration with SIDBI, the scheme helps micro and small enterprises access bank credit without pledging assets.

Under the CGTMSE scheme:

  • Banks and NBFCs offer collateral-free loans
  • The government provides a credit guarantee to lenders
  • Businesses can borrow up to Rs. 2 crore without providing collateral

This initiative greatly enhances credit accessibility for MSMEs, fosters entrepreneurship, and supports business growth across India.

 

What is the CGTMSE scheme?

The credit guarantee fund trust for micro and small enterprises (CGTMSE) is a robust scheme initiated by the Government of India. It facilitates the availability of credit to micro and small enterprises (MSEs). Established with the objective of enabling better access to funds, the scheme primarily focuses on new and existing micro and small business owners, stimulating entrepreneurship, and economic growth. If you are interested in knowing more about Mudra Loan interest rate, this will help you make informed decisions about loan affordability.

 

CGTMSE Scheme – Highlights

AspectDetails
Scheme nameCredit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
ObjectiveTo provide credit guarantee to lenders for loans extended to micro and small enterprises (MSEs)
Governing bodyCredit Guarantee Fund Trust for Micro and Small Enterprises
CoverageMicro and Small Enterprises (MSEs) across various sectors
Eligibility criteriaMSEs engaged in manufacturing or service activities
Maximum loan amount covered by guaranteeUp to Rs. 2 crore for both term loans and working capital facilities
Guarantee coverageVaries based on the loan amount and category of borrower
Guarantee feeTypically a one-time fee charged by the CGTMSE
Types of loans coveredTerm loans and working capital loans extended to MSEs
Collateral requirementsCollateral-free loans up to Rs. 2 crore for eligible MSEs
Guarantee periodGenerally, up to 5 years from the date of disbursement of credit facility
Default coverageA portion of the defaulted amount is covered by the CGTMSE, subject to certain conditions
Participating Financial Institutions (PFIs)Banks, financial institutions, NBFCs, and other eligible lenders
Application processThrough PFIs offering loans to MSEs, which apply for CGTMSE coverage on behalf of borrowers
Claims ProcessInitiated by PFIs in case of default by the borrower, subject to specified procedures
Contribution from BorrowersTypically, no direct contribution is required from borrowers
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CGTMSE scheme loan limit

The CGTMSE scheme offers collateral-free loans of up to Rs. 2 crore for eligible micro and small enterprises.

Loan typeMaximum limit
Micro enterprisesUp to Rs. 50 lakh
Small enterprisesUp to Rs. 2 crore

Loan limits vary depending on the size of the business, project cost, and lender policies.

 

How does the CGTMSE scheme work?

The CGTMSE scheme operates by providing a credit guarantee to lenders when they extend loans to MSMEs without requiring collateral.

Step-by-Step Process:

Loan Application
A micro or small enterprise applies for a business loan from a bank or NBFC participating in the CGTMSE scheme.

Loan Evaluation
The lender assesses the application, considering:

  • Business viability
  • Financial projections
  • Credit profile

Loan Sanction
If approved, the lender sanctions the collateral-free loan.

Guarantee Coverage
The loan is registered under CGTMSE, and the lender receives guarantee coverage of 75%–85% of the loan amount.

Default Protection
In case of borrower default, the CGTMSE trust compensates the lender for the guaranteed portion.

This risk-sharing mechanism encourages financial institutions to provide credit to first-time entrepreneurs and MSMEs, improving access to finance across India.



Types of credit facilities available under the CGTMSE scheme

The CGTMSE scheme provides various credit facilities tailored to meet the financial needs of Micro and Small Enterprises (MSEs) in India. These include:

  1. Term loans: Designed for long-term investments such as purchasing equipment, machinery, or fixed assets.
  2. Working capital loans: Offers funds to support daily business operations and ensure smooth cash flow for business continuity.
  3. Composite loans: Combines term loans and working capital loans, enabling MSEs to address both operational and investment needs with a single loan.
  4. Fund-based facilities: Direct financial assistance in the form of loans or advances for business growth and operational needs, including overdrafts and cash credit.
  5. Non-fund-based facilities: Includes guarantees or letters of credit to facilitate business transactions without requiring immediate cash payment.

All these credit options are provided without the need for collateral or third-party guarantees, simplifying access to funds for MSEs.

Credit facilities not Covered under the CGTMSE schemes

Credit facilities not covered under the CGTMSE schemes include:

  • Loans for educational, training, and self-development purposes.
  • Retail trade or consumer loans.
  • Any loans for agriculture, fisheries, and livestock sectors.
  • Loans for self-help groups (SHGs).
  • Microfinance and loans under the direct agriculture category.
  • Credit facilities availed for non-business purposes.
  • Loans secured by collateral or third-party guarantees.
  • Any credit facility for enterprises in sectors deemed ineligible by CGTMSE.
  • Facilities availed by enterprises that are not classified as Micro or Small Enterprises (MSEs).

Credit guarantee under CGTMSE Scheme

Under the CGTMSE scheme, credit guarantee is provided to lenders such as banks, Non-Banking Financial Companies (NBFCs), and other financial institutions, covering loans extended to Micro and Small Enterprises (MSEs). This guarantee mitigates the risk for lenders, encouraging them to extend credit to MSEs without the need for collateral. In case of default by the MSE borrower, the CGTMSE reimburses a portion of the outstanding loan amount to the lender, thus safeguarding their interests. The pmfme scheme also supports the growth of micro-enterprises by providing financial aid and technical support.

 

CGTMSE guarantee coverage percentage

Under the CGTMSE scheme, lenders receive guarantee coverage depending on the category of the borrower.

Borrower categoryGuarantee coverage
Micro enterprises85%
Women entrepreneurs85%
Other MSMEs75%

This coverage mitigates the lender’s risk and promotes easier access to finance for small businesses



Features and benefits of CGTMSE scheme

  1. Loan guarantee:
    One of the standout features of the CGTMSE scheme is its provision of credit guarantees to financial institutions, including banks and Non-Banking Financial Companies (NBFCs). This guarantee mitigates the risk involved in lending to micro and small enterprises.

     
  2. Loan amount:
    Under the CGTMSE scheme, eligible borrowers can avail collateral-free loans up to a specific limit, which is subject to change based on the scheme's regulations.

     
  3. Loan Tenure:
    The scheme provides flexibility in the loan tenure, enabling borrowers to repay their loans over an extended period, depending on the nature of the business.

     
  4. Wide coverage:
    The CGTMSE scheme covers a wide range of business activities, making it accessible to various sectors of the economy.

     
  5. Reduced collateral requirement:
    For micro and small enterprises, one of the primary obstacles to accessing credit is the lack of collateral. The CGTMSE scheme mitigates this issue, as loans under this scheme are primarily collateral-free.

     
  6. Competitive Interest rates:
    The interest rates on business loan provided under the CGTMSE scheme are often competitive, making it an attractive financing option for entrepreneurs.

     
  7. Smoother access to credit:
    This scheme encourages financial institutions to provide credit to businesses they might have otherwise considered high-risk, fostering economic development.

Lending institutions offering funds under CGTSME scheme

  • Public sector banks: Government-owned banks that provide credit facilities with CGTMSE guarantees.
  • Private sector banks: Commercial banks that operate on a private basis and offer CGTMSE-covered loans.
  • Regional Rural Banks (RRBs): Financial institutions focused on rural areas, extending credit with CGTMSE support.
  • Cooperative banks: Banks operating on a cooperative model, which also offer CGTMSE-backed loans.
  • Non-Banking Financial Companies (NBFCs): Financial entities that provide credit facilities and participate in CGTMSE.
  • Development Financial Institutions (DFIs): Specialised institutions focused on development finance, including CGTMSE-covered loans for MSEs.

 

CGTMSE scheme eligibility

To be eligible for the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme, businesses must satisfy specific criteria as laid down under the MSME guidelines.

Eligibility Criteria

Businesses must:

  • Be registered as a Micro or Small Enterprise (MSE)
  • Operate in the manufacturing, trading, or service sectors
  • Hold a valid Udyam Registration
  • Possess a valid PAN and all requisite business documentation
  • Demonstrate a financially viable business plan

Ineligible Categories

The CGTMSE scheme does not extend to:

  • Educational loans
  • Agricultural activities
  • Self-help groups
  • Consumer loans
  • Non-business credit

Additionally, lenders may evaluate the creditworthiness of the enterprise, the feasibility of the project, and the ability to repay the loan before sanctioning finance.


Difference between CGTMSE loan and MSME loan

FeatureCGTMSE-backed loanMSME loan
DefinitionLoan secured under a government credit guarantee through CGTMSEBusiness loan extended to MSMEs by banks or NBFCs
CollateralNo collateral requiredCollateral may be required
Government guarantee75%–85% of the loan guaranteed by CGTMSEUsually no government guarantee
Eligible BusinessesMicro and Small EnterprisesMicro, Small, and Medium Enterprises
Loan amountTypically up to Rs. 2 croreSubject to lender’s policies
Risk coverageRisk partly covered by the government schemeRisk fully borne by the lender

Quick overview

  • CGTMSE loan: A government-backed, collateral-free loan for micro and small businesses.
  • MSME loan: Standard financing facility for MSMEs provided by banks and NBFCs.
  • Key distinction: CGTMSE loans include credit guarantee coverage, whereas MSME loans may require collateral and depend on the lender’s risk assessment.

Documents required for CGTMSE loan application

When applying for a CGTMSE loan, borrowers are required to submit key business and financial documents.

Required documents

  • Business plan or project report
  • KYC documents of promoters
  • Udyam Registration certificate
  • Proof of business registration
  • Income Tax Returns
  • Bank account statements
  • Financial projections
  • GST registration (if applicable)

Submitting a comprehensive project report along with accurate financial statements enhances the likelihood of obtaining loan approval under the CGTMSE scheme.


How to Apply for the CGTMSE scheme

Businesses cannot apply directly to CGTMSE. Applications must be submitted through a participating bank or NBFC.

Step 1 – Select a Lending Institution
Choose a bank or NBFC that is registered with CGTMSE.

Step 2 – Prepare Documentation
Submit the business plan, financial statements, and KYC documents.

Step 3 – Loan Assessment
The lender evaluates the project’s feasibility and the borrower’s creditworthiness.

Step 4 – CGTMSE Guarantee Registration
Once approved, the lender registers the loan under the CGTMSE guarantee cover.

Step 5 – Loan Disbursement
Upon approval, the funds are released to the borrower.



Limitations of the CGTMSE Scheme

  1. Coverage limitation: The scheme has a cap on the maximum loan amount eligible for guarantee, limiting its applicability for larger financing needs.
  2. Eligibility criteria: Certain MSEs may not meet the criteria set by the scheme, thereby excluding them from accessing its benefits.
  3. Claims processing time: The process of claims settlement by CGTMSE may involve bureaucratic delays, impacting the timely reimbursement to lenders in case of borrower default.
  4. Risk aversion: Lenders may still exercise caution due to residual risk, particularly for higher-risk MSE borrowers.
  5. Coverage exclusions: Certain sectors or activities may be excluded from coverage under the scheme, restricting access for MSEs operating in those segments.

CGTMSE coverage criteria

  • CGTMSE offers coverage against default for micro and small enterprises in India.
  • Guarantees up to 75% (or 85% for specific borrowers) of defaulted principal amounts.
  • Maximum guarantee cap of Rs. 37.50 lakh for credit facilities up to Rs. 50 lakh.
  • Coverage includes term credits and outstanding capital advances, including interest.
  • Period covered is up to one quarter or until the account becomes an NPA or filing of a suit, whichever is lower.
  • Charges like penal interest or service fees are not covered under the guarantee.

Steps to avail Business/MSME Loan under the CGTMSE Scheme

The process for applying and obtaining loans under CGTMSE unfolds as follows:

Step 1. Establishing the Business Entity

Prior to commencing the CGTMSE loan application, establish a suitable business entity and secure all necessary approvals and tax registrations.

Step 2. Drafting a Business Report

Conduct a thorough market analysis and compile a detailed business plan encompassing key aspects such as the business model and financial projections. Seeking professional assistance for preparing accurate project reports can enhance approval prospects.

Step 3. Loan Sanction by the Bank

Submit the loan application along with the business plan. Banks evaluate the viability of the business model and sanction the loan in accordance with their policies.

Step 4. Securing the Guarantee Cover

Upon loan sanction, the bank applies for CGTMSE guarantee cover. Upon approval, pay the requisite guarantee fee and service charges. Download the CGTMSE loan application form from the official website.

The CGTMSE scheme includes 141 banks, including major public and private sector institutions like State Bank of India, United Bank of India, Punjab National Bank, and others.

New CGTMSE Fee Structure (Effective April 1, 2025)

The Annual Guarantee Fee (AGF) has been reduced to make loans cheaper. The CGTMSE fee is charged on the guaranteed amount in the first year, and on the remaining loan balance in later years.

Annual Guarantee Fee by Loan Amount:

  • Up to Rs. 10 lakh: 0.37%
  • Rs. 10 lakh to Rs. 50 lakh: 0.55%
  • Rs. 50 lakh to Rs. 1 crore: 0.60%
  • Rs. 1 crore to Rs. 2 crore: 0.85%
  • Rs. 2 crore to Rs. 5 crore: 1.00%
  • Rs. 5 crore to Rs. 10 crore: 1.10% – 1.20%

Note: Women-owned businesses and ZED-certified units usually get an extra 10% discount on these fees.

CGTMSE charges

The CGTMSE charges are fees levied by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to provide credit guarantees to lenders. These charges vary based on the sanctioned loan amount.

Loan amount rangeCGTMSE charges (Percentage)
Up to Rs. 10 lakhs0.37%
Above Rs. 10 lakhs to Rs. 50 lakhs0.55%
Above Rs. 50 lakhs to Rs. 1 crore0.60%
Above Rs. 1 crore to Rs. 2 crores1.20%
Above Rs. 2 crores to Rs. 5 crores1.35%

Which enterprises can avail of the CGTMSE fund?

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) primarily caters to the needs of micro and small enterprises (MSEs) in India. MSEs from various sectors can avail of the CGTMSE fund, including:

  1. Manufacturing enterprises: Small-scale manufacturing units producing goods across industries such as textiles, food processing, and engineering.
  2. Service enterprises: Micro and small service providers like IT services, consulting firms, and hospitality businesses.
  3. Trading enterprises: Small traders engaged in retail or wholesale trade of goods, including consumer goods and agricultural products.
  4. Agro-based enterprises: Micro enterprises involved in agricultural activities, including farming, processing, and marketing.
  5. Ancillary enterprises: Small-scale ancillary units supporting larger industries by providing components, parts, or services.
  6. Cottage industries: Traditional craft-based enterprises producing handmade goods like handicrafts, handlooms, and artisanal products.
  7. Other small businesses: Small-scale enterprises engaged in diverse sectors like healthcare, education, and construction.

These enterprises can access CGTMSE support to obtain collateral-free credit facilities and fulfill their financial requirements for growth and expansion.

Additional Reading: Udyogini Scheme

Additional Reading: ECLGS Scheme

Helpful resources and tips for business loan borrowers

Types of Business LoanBusiness Loan EMI CalculatorUnsecured Business Loan
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Machinery LoanPersonal Loan for Self EmployedCommercial Loan

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Frequently asked questions

What is the full form of CGTMSE?

The full form of CGTMSE is a credit guarantee fund trust for micro and small enterprises.

What is the CGTMSE charge?

The CGTMSE charges include a one-time guarantee fee and an annual service fee, both of which vary depending on the loan amount and tenure. These charges are typically paid by the borrower.

How is CGTMSE advantageous for business?

The CGTMSE scheme offers several advantages for micro and small enterprises, including access to collateral-free loans, competitive interest rates, extended repayment tenures, and credit guarantees to mitigate risk for lenders. It helps these businesses access the funds they need to grow and prosper, contributing to economic development.

What is the credit limit under CGTMSE?

The credit limit under the CGTMSE scheme is up to Rs. 2 crore per borrower, including term loans and working capital. The credit facility may be extended as cash credit, term loans, or a combination of both. The collateral-free loan under CGTMSE scheme is provided to micro and small enterprises to promote entrepreneurship and facilitate credit flow.

What is the annual guarantee fee in CGTMSE?

The annual guarantee fee in the CGTMSE scheme is 1.5% of the credit facility sanctioned, depending on the loan amount and repayment period. The guarantee fee is payable in advance in one or more instalments and is non-refundable. However, there are some exemptions for the guarantee fee for certain categories of borrowers.

What is the maximum limit of CGTMSE?

The maximum limit of CGTMSE is Rs. 2 crore for both term loans and working capital facilities.

What is the lock-in period in CGTMSE?

The lock-in period in CGTMSE is 18 months from the date of last disbursement or guarantee approval, whichever is later.

Who is eligible for the CGTMSE scheme?

Micro and Small Enterprises, whether newly established or already in operation, involved in manufacturing or service activities, are eligible. This excludes entities engaged in agriculture, Self Help Groups (SHGs), and similar sectors.

Which banks provide the CGTMSE scheme?

Various commercial banks, regional rural banks, and financial institutions participate in the CGTMSE scheme. The list of participating banks and financial institutions are regularly updated on the official CGTMSE website.

Is Mudra loan covered under CGTMSE?

The Mudra Loan Scheme falls under the purview of CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises), offering both term loans and overdraft facilities. In the event of default, the government takes responsibility for loan repayment.

What is the charge required by the CGTMSE for loan up to 5 lakh?

The CGTMSE charges for loans up to Rs. 5 lakh vary based on the sanctioned amount. For credits up to Rs. 5 lakhs, the charge is 0.75% of the sanctioned amount. Meanwhile, for credits exceeding Rs. 5 lakhs but up to Rs. 100 lakh, the charge increases to 0.85%. Additionally, under this scheme, the credit guarantee ranges from 75% to 85% for micro-enterprises, with a tenure of 5 years, providing financial security and support for small-scale borrowers.

What is the lock period for CGTMSE?

The lock period for CGTMSE typically varies depending on the specific terms of the loan agreement between the lender and the borrower. However, generally, the lock period is up to 5 years from the date of disbursement of the credit facility. During this period, the borrower is expected to adhere to the terms of the loan agreement, and any changes or early repayment may be subject to penalties or renegotiation terms specified therein.

What are the benefits of a CGTMSE loan?

CGTMSE loans offer several benefits to micro and small enterprises, including access to collateral-free credit, simplified application procedures, and reduced risk for lenders. Additionally, these loans often come with competitive interest rates and longer repayment tenures, facilitating easier access to funds for business expansion and working capital needs.

Is collateral required for a CGTMSE loan?

No, collateral is not required. The loan is secured under the CGTMSE government credit guarantee.

Who provides loans under the CGTMSE scheme?

Loans are offered through banks and NBFCs registered with CGTMSE. Businesses cannot apply directly to CGTMSE.

What is the guarantee coverage under CGTMSE?

The CGTMSE scheme provides a guarantee of 75%–85% of the loan amount, depending on the lender and loan type.

Can startups apply for a CGTMSE loan?

Yes, startups that qualify as Micro or Small Enterprises and meet other eligibility criteria can apply through a participating lender.

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