What’s New in the Expansion of the Credit Guarantee Scheme for Startups?

New Delhi, May 9 (NationPress) The Department for Promotion of Industry and Internal Trade (DPIIT), part of the Ministry of Commerce and Industry, has announced an expansion of the Credit Guarantee Scheme for Startups (CGSS). This initiative raises the guarantee coverage limit per borrower from Rs 10 crore to Rs 20 crore.

Moreover, the guarantee cover has been enhanced to 85 per cent for loans up to Rs 10 crore and 75 per cent for amounts exceeding this threshold, as stated in an official announcement made on Friday.

The Annual Guarantee Fee (AGF) for startups within 27 Champion Sectors has been lowered from 2 per cent p.a. to 1 per cent p.a.. These sectors have been designated by the Government under the 'Make in India' initiative to bolster India's manufacturing and service capabilities. This reduction aims to attract funding to these sectors and foster innovation in domestic manufacturing and self-sufficiency.

Aligned with Prime Minister Narendra Modi's vision of transforming India into an innovation-driven, self-reliant economy, these expansions are designed to meet the financial needs of innovation-oriented startups. The increased guarantee support is expected to encourage more financial institutions to extend credit to startups, thus enhancing the overall funding landscape.

The revamped scheme will mitigate the perceived risks involved in lending to startups through established financial institutions, promoting greater financial flow and enabling startups to engage in research and development (R&D), experimentation, and the creation of advanced technologies.

Additionally, various operational reforms and enabling measures identified through discussions with the startup ecosystem have been incorporated into the expanded CGSS, making the scheme appealing to both lenders and startups seeking financial assistance.

These modifications and expansions are anticipated to propel the scheme forward and allow a broader range of startups to benefit, contributing to the nation's goal of becoming a 'Viksit Bharat'.

The Startup India initiative, along with its Action Plan for Startups, was introduced by Prime Minister Modi on January 16, 2016, aimed at cultivating a vibrant startup ecosystem across the country.

In accordance with the Action Plan, the Government approved and launched the Credit Guarantee Scheme for Startups (CGSS) on October 6, 2022, which offers guarantees up to a specific limit against credit instruments extended to startups by scheduled commercial banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies, and SEBI-registered Alternative Investment Funds (AIFs).

The primary objective of the CGSS is to facilitate financing for eligible startups by enabling collateral-free debt funding through various avenues, including working capital, term loans, and venture debt.

To further stimulate entrepreneurship by enhancing credit support for innovators and encouraging financial institutions to provide early-stage debt funds to startups, the Union Budget 2025-26 proposed an increase in credit availability with guarantee coverage for startups.