New Delhi: The Centre's Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry has notified the expansion of the Credit Guarantee Scheme for Startups (CGSS) which increases the ceiling on guarantee cover per borrower from Rs 10 crore to Rs 20 crore.
The extent of guarantee cover provided has also been increased to 85 per cent of the amount in default for loan amounts up to Rs 10 crore and 75 per cent of the amount in default for loan amounts exceeding Rs 10 crore, according to an official statement issued on Friday.
Several operational reforms and other enabling measures identified through consultations with the startup ecosystem have also been included in the expanded CGSS to make the scheme attractive for lenders and startups seeking funding support.
The expansions and modifications are expected to give thrust to the Scheme and enable a wider range of startups to benefit to propel the country towards becoming a 'Viksit Bharat'.
The expanded scheme will further reduce the perceived risks associated with lending to startups in established financial institutions, enabling greater financial flow and runway for startups to undertake research and development (R&D), experimentation, and create cutting-edge innovation and technologies.
Further, the Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors has been reduced to 1 per cent p.a. from 2 per cent p.a. The Champion Sectors have been identified by the Government under 'Make in India' to provide a thrust to India's manufacturing and service capabilities. The reduction in AGF for Champion Sectors will make funding more attractive for the identified sectors and boost innovation in domestic manufacturing and self-reliance.
In line with Prime Minister Narendra Modi's vision for transforming India into an innovation-driven self-reliant economy, the notified expansions aim to address the financing needs of innovation-driven startups. As a result of the increased guarantee support and coverage, the number of financial institutions coming forward to provide credit support to startups will increase, thereby increasing overall fund flow for startups.
Prime Minister Modi launched the Startup India initiative along with an Action Plan for Startups on January 16, 2016, to create a vibrant startup ecosystem in the country.
The broad objective of CGSS is to finance eligible startups by enabling collateral-free debt funding to startups through avenues such as working capital, term loans, and venture debt.
To further catalyse entrepreneurship by providing enhanced credit support to innovators and encouraging financial institutions in the ecosystem to provide early-stage debt funds to startups, the Union Budget 2025-26 proposed the enhancement of credit availability with guarantee cover for startups.
In line with the Action Plan for startups, the Government approved and notified the 'Credit Guarantee Scheme for Startups (CGSS)' on October 6, 2022, to provide guarantee up to a specified limit against credit instruments extended to startups by scheduled commercial banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).
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