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How to Apply for A Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)?

Submitted by admin on August 23rd, 2024

Introduced in the year 2000, the CGTMSE or Credit Guarantee Fund Trust for Micro and Small Enterprises is the Indian government and SIDBI or the Small Industries Development Bank of India’s scheme. Put simply, the CGTMSE provides collateral free loans to MSEs i.e. Micro and Small Enterprises without necessitating any third-party guarantee.

CGTMSE gives guarantees to MSEs for loans borrowed through financial institutions, private, public, and foreign banks, which are considered MLIs or Member Lender Institutions. Under this scheme, till April 2023, MSEs have been able to benefit from credit guarantees up to ₹2 crores. However, since then this ceiling limit has been increased to ₹5 crores.

Why avail CGTMSE?

96% of India’s industrial units are owned by small enterprises. Their contribution to India’s industrial production and exports is 40% and 42% respectively. Unfortunately, barely 2.5 crore of India’s whopping 6.3 crore MSEs, avail loans from formal sources. Hence, CGTMSE was launched to offer all MSEs improved access to formal loans.

Due to a dearth of third-party guarantee and collateral, small businesses face several challenges when attempting to arrange finance. As a result, they are compelled to rely on informal finance sources, thereby falling prey to unfair trade practices and interest rates. Consequently, their businesses suffer and remain unable to achieve their full potential.

Thankfully, through CGTMSE, MSEs are able to easily avail term loans and working capital solutions to fulfil their short and long-term financial needs.

Benefits of the CGTMSE scheme

CGTMSE scheme’s benefits include but are not limited to the following:

Easy access: CGTMSE is a scheme that boasts well defined guidelines, making it simpler for MLIs i.e. banks to offer loans easily and efficiently. Moreover, for MSEs the loan application process is quick and straightforward.

Nominal guarantee fee: Loans borrowed under the CGTMSE scheme charge a yearly AGF or Annual Guarantee Fee. In fact, for small ticket loans of up to ₹10 lakhs, the AGF is nominal. For loans between ₹2 and ₹5 crores this AGF is around 1.35% of the principal amount and is subject to change.

No collateral needed: The vast majority of small businesses have some or no assets, making it almost impossible for them to provide collateral to avail desired loans. Hence, CGTMSE has emerged as a collateral free solution for them.

Improved fund availability: Thanks to this scheme, eligible MSEs are able to avail loans of even ₹5 crores when needed. With this high ceiling limit, they can fund their expansion plans, working capital needs, and all forms of expenditure. Additionally, MSEs can invest in their infrastructure and technology necessities.

Eligibility criteria for CGTMSE 

• Borrowers cannot be defaulters with any financial institution or banks.
• New and existing MSEs involved in manufacturing and trading can avail loans via this scheme. Self-help group and agriculture businesses are excluded.
• MLI are required to assess the MSE’s track record and deem it profitable and viable.
• In the MSMED Act of 2006, the eligibility criteria for micro as well as small enterprises are detailed separately. The eligibility of a business depends on its profit and investments in machinery, equipment, and plant.

Documents needed to apply for CGTMSE loans

• Loan application form
• Business registration certificate or proof of incorporation
• Applicant’s passport size photo
• Applicant’s KYC
• Udyam registration certificate