CGTMSE: Loan, Scheme Highlights, Eligibility, Documents required, How to Apply, Interest Rate, Limitation, and Coverage

In a nation teeming with entrepreneurial spirit, financial support is often the bridge between dreams and reality. The credit guarantee fund trust for micro and small enterprises (CGTMSE) scheme emerges as a beacon of hope for aspiring business owners, offering financial assistance and risk mitigation.

In this handy guide, we will explore the CGTMSE scheme, its features, eligibility criteria, application process, and the benefits it brings to the world of small and micro enterprises.

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.

CGTMSE Scheme – Highlights

Aspect	Details
Scheme name	Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Objective	To provide credit guarantee to lenders for loans extended to micro and small enterprises (MSEs)
Governing body	Credit Guarantee Fund Trust for Micro and Small Enterprises
Coverage	Micro and Small Enterprises (MSEs) across various sectors
Eligibility criteria	MSEs engaged in manufacturing or service activities
Maximum loan amount covered by guarantee	Up to Rs. 2 crore for both term loans and working capital facilities
Guarantee coverage	Varies based on the loan amount and category of borrower
Guarantee fee	Typically a one-time fee charged by the CGTMSE
Types of loans covered	Term loans and working capital loans extended to MSEs
Collateral requirements	Collateral-free loans up to Rs. 2 crore for eligible MSEs
Guarantee period	Generally, up to 5 years from the date of disbursement of credit facility
Default coverage	A 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 process	Through PFIs offering loans to MSEs, which apply for CGTMSE coverage on behalf of borrowers
Claims Process	Initiated by PFIs in case of default by the borrower, subject to specified procedures
Contribution from Borrowers	Typically, no direct contribution is required from borrowers

Schemes under CGTMSE

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) offers various schemes to support the growth of Micro and Small Enterprises (MSEs) by providing credit guarantees for loans without the need for collateral. This initiative aims to encourage banks and financial institutions to lend to MSEs, thereby fostering entrepreneurship and economic development.

Here are the key schemes under CGTMSE:

1. Credit Guarantee Scheme (CGS): The core scheme provides guarantee coverage for loans extended to MSEs by banks and financial institutions without requiring collateral or third-party guarantees. The guarantee covers up to 85% of the loan amount.
2. Hybrid Security Scheme: This scheme allows a portion of the loan to be secured by collateral while the unsecured portion is covered under the CGTMSE guarantee. It provides flexibility to both lenders and borrowers.
3. CGTMSE for Women Entrepreneurs: This scheme offers special coverage and higher guarantee limits to women entrepreneurs, encouraging more participation of women in business.
4. Credit Guarantee for MUDRA Loans: Under this scheme, CGTMSE provides credit guarantee coverage for loans extended under the MUDRA (Micro Units Development and Refinance Agency) initiative, targeting micro-enterprises.

Scheme Name	Description
Credit Guarantee Scheme (CGS)	Provides collateral-free credit guarantees for loans to MSEs.
Hybrid Security Scheme	Allows partial collateral-backed loans, with the unsecured portion covered by CGTMSE.
CGTMSE for Women Entrepreneurs	Offers enhanced credit guarantee support to women-owned businesses.
Credit Guarantee for MUDRA Loans	Extends coverage to micro-enterprises availing loans under the MUDRA scheme.

How does the CGTMSE scheme work?

The CGTMSE scheme operates through a systematic process to provide credit guarantee to lenders for loans extended to Micro and Small Enterprises (MSEs). Here's how it works:

Step 1: MSEs apply for loans from participating financial institutions (PFIs), such as banks or NBFCs.

Step 2: The PFIs assess the creditworthiness of the MSE borrowers and their loan requirements.

Step 3: The PFI applies to the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) for coverage of the loan under the scheme on behalf of the MSE borrower.

Step 4: Upon verification and approval by CGTMSE, the loan is covered under the scheme, providing credit guarantee to the PFI against default by the MSE borrower.

Step 5: Once approved, the PFI disburses the loan amount to the MSE borrower.

Step 6: The MSE borrower repays the loan according to the agreed terms. If default occurs, the PFI initiates the claims process with CGTMSE.

Step 7: CGTMSE settles the claim partially, covering a portion of the defaulted amount as per the scheme's terms and conditions.

Types of credit facilities available under the CGTMSE scheme

1. Under the CGTMSE scheme, Micro and Small Enterprises (MSEs) can access various credit facilities.
2. These facilities include:
   • Term Loans: Typically used for acquiring fixed assets or making long-term investments.
   • Working capital loans: Provide funds for daily operations and managing cash flow.
3. The scheme offers flexible financing options tailored to the specific needs of MSEs.
4. It helps MSEs sustain and grow their businesses by ensuring access to adequate financial support.
5. The collateral-free nature of the loans encourages more MSEs to apply, reducing the risk for lenders while boosting entrepreneurship.

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.

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

The CGTMSE scheme targets micro and small enterprises, encompassing various sectors and activities. To be eligible for this scheme, a business must meet the following criteria:

• The business should be classified as a micro or small enterprise.
• The proposed business activity should not fall under the negative list of the scheme.
• The business owner should possess the required skills and experience in the specific sector.
• The business should comply with all statutory and regulatory requirements.

Business Loan Eligibility Criteria can vary, so it is advisable to check with the respective lending institution for precise information regarding your business's eligibility.

Documents required for CGTMSE loan application

The specific documentation required can vary depending on the lending institution and the nature of your business. However, here are some common documents you may need when applying for a loan under the CGTMSE scheme:

• Business plan and project report
• KYC documents of the business owners
• Proof of business ownership
• Financial statements and projections
• Business registration and licences
• Income Tax Returns
• Bank statements
• Any additional documents specified by the lending institution

In conclusion, the CGTMSE scheme is a valuable initiative by the government to support micro and small enterprises in India. It simplifies the loan application process, reduces the collateral burden, and fosters entrepreneurship by facilitating easier access to credit. Whether you are starting a new business or looking to expand an existing one, the CGTMSE scheme could be the financial boost you need to achieve your business goals.

How to Apply for the CGTMSE scheme

The process of applying for a loan under the CGTMSE scheme is relatively straightforward. Here are the essential steps:

1. Identify a lending institution
   First, identify a financial institution participating in the CGTMSE scheme, such as a bank or NBFC, to apply for the loan.
2. Documentation:
   Compile all necessary documentation required by the lending institution. This usually includes business plans, financial statements, and any other documents specific to the lending institution's requirements.
3. Application submission:
   Submit your loan application, along with the necessary documentation, to the selected financial institution. Ensure that you meet all eligibility criteria outlined by the lending institution and the CGTMSE scheme.
4. Evaluation and approval:
   The financial institution will evaluate your loan application, assess the feasibility of your business plan, and verify your eligibility for the CGTMSE scheme. If approved, your loan application will move forward.
5. CGTMSE guarantee:
   Upon approval, the financial institution will apply for a guarantee cover from the CGTMSE for the sanctioned loan amount. This guarantee mitigates the institution's risk, increasing the likelihood of approval.
6. Loan disbursement:
   Once the guarantee is in place, and all necessary requirements are met, the financial institution disburses the loan amount to your business.
7. Repayment:
   Repay the loan as per the agreed-upon terms and conditions.

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.

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 range	CGTMSE charges (Percentage)
Up to Rs. 10 lakhs	0.37%
Above Rs. 10 lakhs to Rs. 50 lakhs	0.55%
Above Rs. 50 lakhs to Rs. 1 crore	0.60%
Above Rs. 1 crore to Rs. 2 crores	1.20%
Above Rs. 2 crores to Rs. 5 crores	1.35%

 

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.

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