Types of CGTMSE fees
CGTMSE fees come in various forms, each playing a unique role in the loan guarantee scheme. Explore the various types of CGTMSE fees crucial for small businesses.
- Guarantee fee: Essential charge ensuring the loan guarantee.
- Annual service fee: Covers operational costs on an annual basis.
- Upfront fee: One-time payment at the loan sanction stage.
- Nominal charges: Accessible for entrepreneurs, aiding in smaller rural cities.
- Strategic planning: Understanding and budgeting effectively for business owners.
- Sustainability: Each fee type contributes to the long-term support of small enterprises.
- Financial empowerment: Knowledge of these fees empowers entrepreneurs to benefit from the Credit Guarantee Fund Trust for Micro and Small Enterprises.
If you are considering small business funding options, the shishu mudra loan could also be a good starting point for smaller loan amounts.
CGTMSE Annual Guarantee Fee (AGF) Structure
The Annual Guarantee Fee (AGF) under the CGTMSE scheme is not a uniform rate but follows a tiered structure based on the loan amount sanctioned. Smaller credit facilities are usually charged a lower percentage, ensuring affordability for micro and small borrowers.
The current AGF structure (applicable to all activities, including trading, for guarantees approved or renewed on or after April 1, 2025, or as per the latest notification) is as follows:
Loan Slab (Credit Facility Amount)
|
Standard Annual Guarantee Fee (per annum)
|
Up to Rs. 10 Lakh
|
0.37%
|
Above Rs. 10 Lakh - Up to Rs. 50 Lakh
|
0.55%
|
Above Rs. 50 Lakh - Up to Rs. 1 Crore
|
0.60%
|
Above Rs. 1 Crore - Up to Rs. 2 Crore
|
0.85%
|
Above Rs. 2 Crore - Up to Rs. 5 Crore
|
1.00%
|
Above Rs. 5 Crore - Up to Rs. 8 Crore
|
1.10%
|
Above Rs. 8 Crore - Up to Rs. 10 Crore
|
1.20%
|
Note: The scheme provides coverage for loans up to Rs. 10 Crore. The AGF is applied to the guaranteed amount for the first year and to the outstanding balance for subsequent years.
Role of the Annual Guarantee Fee (AGF)
The Annual Guarantee Fee (AGF) represents the primary cost for borrowers under the CGTMSE scheme and acts as a premium for the credit risk protection offered by the Trust.
- First-year calculation: In the initial year, the AGF is charged on the total sanctioned or guaranteed loan amount, as defined by the prevailing scheme guidelines.
- Subsequent-year calculation: For the remaining loan tenure, the AGF is computed on the outstanding loan balance as of a specified date (typically March 31) each year. This structure benefits borrowers since the payable fee decreases annually in proportion to the principal amount repaid.
Concessions and Discounts on CGTMSE AGF
To encourage financial inclusion and support priority sectors, CGTMSE provides concessional AGF rates for select borrower categories. These concessions usually translate into a 10% reduction on the applicable standard fee.
Key categories eligible for these benefits include:
- Women entrepreneurs: MSEs owned or managed by women.
- SC/ST entrepreneurs: Enterprises promoted by individuals belonging to Scheduled Castes or Scheduled Tribes.
- Aspirational districts: Units established in government-designated Aspirational Districts.
- ZED-certified units: Enterprises holding Zero Effect, Zero Defect (ZED) certification.
- Special regions: Units based in the North Eastern Region (NER), including Sikkim, and the Union Territories of Jammu & Kashmir and Ladakh, for loans up to Rs. 50 lakh.
Factors affecting CGTMSE fees
Ever wondered why CGTMSE fees vary? Dive into the factors that influence these charges, providing insights that help you navigate the financial landscape and plan your entrepreneurial journey wisely.
- Loan amount: CGTMSE fees often correlate with the sanctioned loan amount.
- Business profile: The nature and scale of the business influence fee variations.
- Risk assessment: Individual borrower risk affects the Guarantee Fee percentage.
- Tenure: Longer loan tenures may impact the Annual Service Fee.
- Industry type: Different sectors may have varying fee structures.
- Previous track record: Borrower's credit history may impact fee calculations.
- Economic conditions: Fluctuations in the economic landscape can affect CGTMSE fees.
- Government policies: Changes in policies may influence fee structures.
- Financial inclusivity: CGTMSE aims to keep fees accessible for diverse businesses.
- Transparent communication: Clear understanding aids in navigating fee-related complexities.
For those who are managing their business finances, exploring the pmfme scheme could offer additional avenues of support for micro and small enterprises.
How is the CGTMSE AGF calculated?
The Annual Guarantee Fee (AGF) is computed by the Member Lending Institution (MLI) as a percentage of the guaranteed or outstanding loan amount.
Formula:
Annual Guarantee Fee = Guaranteed Amount × Applicable AGF Rate
Example:
If a micro or small enterprise (MSE) secures a Rs. 40 lakh fund-based loan with an AGF rate of 0.55%:
- Guaranteed amount: Assuming 75% coverage, Rs. 40 lakh × 75% = Rs. 30 lakh.
- First-year AGF: Rs. 30 lakh × 0.55% = Rs. 16,500.
- Subsequent years: The AGF is recalculated annually on the remaining guaranteed portion (as of March 31). As the principal reduces with repayments, the payable AGF amount decreases proportionately.
Who needs to pay CGTMSE fees?
Under CGTMSE guidelines, the Member Lending Institution (MLI), whether a bank or financial institution, pays the Annual Guarantee Fee (AGF) directly to the Trust. However, this cost is usually recovered from the borrower. The choice to bear or transfer the fee lies with the lender, though in most cases, MLIs pass the AGF expense to the borrower as part of the loan cost.
Benefits of paying CGTMSE fees
Paying CGTMSE fees isn't just an obligation – it's an investment in your business's future. Discover the advantages that come with fulfilling these financial commitments, paving the way for a secure and supported entrepreneurial venture.
- Enhanced loan accessibility: Payment of CGTMSE fees increases the likelihood of loan approval for small businesses.
- Financial security: CGTMSE provides a safety net, ensuring lenders against potential losses, and fostering financial security for borrowers.
- Competitive interest rates: Fulfilling CGTMSE obligations may lead to more favourable interest rates, reducing the overall cost of borrowing.
- Business growth opportunities: Access to CGTMSE-backed loans opens doors for business expansion, helping entrepreneurs realize growth aspirations.
- Trust building: Consistent payment of fees builds trust with lenders, establishing a positive financial track record for future transactions.
- Economic development: CGTMSE fees contribute to the overall development of the small business sector, fostering economic growth.
- Risk mitigation: CGTMSE ensures financial support in case of borrower default, mitigating risks for both lenders and entrepreneurs.
- Financial inclusion: By paying CGTMSE fees, entrepreneurs contribute to the inclusivity of financial services, promoting economic diversity.
- Transparent financial landscape: Understanding and fulfilling CGTMSE fees creates a transparent financial environment, facilitating informed business decisions.
- Long-term business sustainability: Benefits of paying CGTMSE fees extend to long-term business sustainability, providing continuous support for small enterprises.
If you are looking for more financial opportunities for your business, you can also consider applying for the eclgs-emergency-credit-line-guarantee-scheme, which offers quick assistance during tough times.
Consequences of Non-Payment of CGTMSE AGF
Timely payment of the Annual Guarantee Fee (AGF) is essential for maintaining the validity of the CGTMSE guarantee cover.
- The Member Lending Institution (MLI) must remit the AGF to the Trust within the prescribed deadline.
- Failure to pay the AGF on time results in the termination of the guarantee cover on the borrower’s outstanding credit facility, exposing the bank to risk and possibly affecting the borrower’s loan status.
- For accounts that become Non-Performing Assets (NPAs) or where a claim is submitted, the AGF must be paid up to the date of claim settlement to retain coverage.
Conclusion
In conclusion, CGTMSE fees are more than just charges, they are the cornerstone of support for small businesses.
As you embark on your entrepreneurial journey, explore the possibilities with Bajaj Finserv Business Loan, providing tailored solutions to fuel your business dreams.
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