What is CGTMSE?

The Ministry of Micro, Small, and Medium Enterprises, Government of India and SIDBI (Small Industries Development Banks of India) launched a trust by the name of CGTMSE on August 20, 2000. CGTMSE full form is Credit Guarantee Fund Trust for Micro and Small Enterprises.

The main objective of the CGTMSE scheme is to give a credit guarantee to the institutions that provide business loans to MSMEs.

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What is a Credit Guarantee Under CGTMSE?

The CGTMSE meaning is Credit Guarantee Fund Trust for Micro and Small Enterprises. Under this scheme, the loan provided to the applicant is backed by a party without asking for a collateral or third-party guarantee to lenders. There is a team of the lending institution which provide guarantee cover for a large portion of the loan amount. Under the CGTMSE scheme, MSMEs both new and old including service enterprises are eligible for a maximum credit cap of Rs. 2 crores.

Features of CGTMSE Loan

The scheme aims to encourage and help small business owners to avail a cgtmse loan for new businesses. According to the scheme, the fund trust will compensate the financial institutes (up to a limit) if the borrower defaults on the loan.

The following are the features of the schemes:

  1. Under the scheme, the financial institutions can get reimbursement of up to 75% (in some cases, 85%) of the loan amount.
  2. The maximum cap for compensation is Rs. 62.5 lakhs – Rs. 65 lakhs for business loans up to Rs. 50 lakhs.
  3. For loans above Rs. 50 lakhs but less than Rs. 100 lakhs, the maximum guarantee is 50% of the loan amount.
  4. For microloans up to Rs. 5 lakhs, the maximum guarantee gap is 85%.
    85% of the loan amount is covered for loans availed in the North East Region (NER) and by women entrepreneurs.

Documents required for Loan under CGTMSE Scheme

Below stated are the documents required for a loan under the CGTMSE scheme and its coverage:

What is the CGTMSE Claim Settlement Procedure?

After the loan sanctioned, there is an 18 months lock-in period to claim. The bank and lender can claim one of the default accounts notify as an NPA. CGTMSE claim settlement procedure is where a lender tries to recover the loan amount.

CGTMSE Scheme Eligibility Criteria

The following is the eligibility criteria to avail CGTMSE loan:

Lending Institutions: all scheduled commercial banks, regional banks (specified), NSICs, NEFDi, and SIDBIs are considered eligible. The institutions entering into an agreement with the scheme are called MLIs – Member Lending Institutions.

Eligible Borrowers: all MSMEs are eligible for credit guarantee under the following conditions:

The CGTMSE guarantees 75% reimbursement of the defaulted amount (85% in some cases). The maximum cap for this is Rs. 37.50 lakh for loans up to Rs. 50 lakh. The term credit includes interest on the principal amount for a period of one-quarter or outstanding capital advances (including interest) on the date the account becomes NPA (Non-Performing Asset) or the date of filing suit, the one which is lower.

Additional charges, such as penal interest, service charge, commitment charge, etc. do not qualify for the guarantee.

SMEs owned and operated by women entrepreneurs are also eligible for a guarantee cover of 80%. And loans availed in North East Region are eligible for guarantee cover of Rs. 50 lakhs.

Businesses in retail trade, agriculture, educational and training institutions, and Self-Help Groups are not eligible for CGTMSE coverage.

How to Avail a Loan Under CGTMSE?

The primary objective of the scheme is to bring lending institutions’ notice to the MSMEs and provide them with financial help. Notably, the business owner has to pay an additional fee and service charge to avail of the guarantee scheme, in addition to the interest cost on the loan amount.

The current guarantee fee is 1.5% and 0.75% for the North East Region (including Sikkim). The following are steps to avail a loan under CGTMSE loan scheme:

Business Entity Formation: the borrower first has to incorporate a private limited company, one person company, proprietorship, or a limited liability company and obtain all the necessary approvals and tax registrations for it.

Business Plan: here, the business owner needs to conduct a market analysis to prepare a business plan with relevant information, such as promoter profile, business model, projected financials, etc. The report has to be presented to the credit facility along with a loan application filled duly to avail a loan under the CGTMSE scheme. However, it is recommended to get the reports prepared by experienced professionals as this would increase the chances of loan approval.

Business Loan Sanction: once the business report and plan is under review, the lender analyses the feasibility of the business as per his policy. If everything seems fine, the loan application is approved, and the loan is sanctioned.

Request to Trust for Cover: after sanctioning the loan, the lender applies for CGTMSE cover and obtains it. If CGTMSE approves the business loan, the business owner will have to pay the guarantee fee and service charges.

The list of MLIs under the Credit Guarantee Fund Scheme for Micro and Small Enterprises contains 131 banks including rural and urban banks and public and private sector banks of India. The list contains some larger banks as well, like Union Bank of India, State Bank of India, Punjab National Bank, United Bank of India, etc.

What is CGTMSE Coverage?

To run the scheme smoothly, the Government of India and SIDBI set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). CGTMSE has introduced a new "Hybrid Security" product allowing guarantee cover for the portion of credit facility not covered by collateral security.

CGTMSE Toll-Free Number – 1800-222-659/ (022)-6722-1553

Advantages of CGTMSE Coverage

MSMEs are an integral part of the country’s economy as they contribute significant numbers to India’s GDP. Besides, they also provide job opportunities to over 7 crore people. However, despite their efforts and significant contributions, they find it hard to get business loans. Lending institutions stay away from lending money to small businesses due to high NPA rates in small businesses.

CGTMSE plays a crucial role to help small businesses counter this situation. It shares the risk factor bringing relief to both the lending institution and borrowers. The scheme offers various advantages to new and existing MSMEs. The major advantage is that an individual can avail credit facility, even if he has no or minimum business experience. However, the cover is optional.

How to Apply for a CGTMSE loan scheme?

Here are the steps to follow to avail CGTMSE loan:

Credit Gaurantee

Any collateral / third party guarantee free credit facility (both fund as well as nonfund based) extended by eligible institutions, to new as well as existing Micro and Small Enterprise, including Service Enterprises, with a maximum credit cap of  200 lakh (Rupees Two Hundred lakh only) are eligible to be covered. Recently, guarantee coverage made eligible to select NBFCs and Small Finance banks.

The guarantee cover available under the scheme is to the extent of 50%/ 75% / 80% & 85% of the sanctioned amount of the credit facility. The extent of guarantee cover is 85% for micro-enterprises for credit up to  5 lakh. The extent of guarantee cover is 50% of the sanctioned amount of the credit facility for credit from  10 lakh to  100 lakh per MSE borrower for retail trade activity.

The extent of guarantee cover is 80%(i) Micro and Small Enterprises operated and/or owned by women; and (ii) all credits/loans in the North East Region (NER) for credit facilities up to  50 lakh. In case of default, Trust settles the claim up to 75% of the amount in default of the credit facility extended by the lending institution for credit facilities up to  200 lakh.

CategoryMaximum extent of Guarantee where credit facility is
Up to 5 LakhAbove 5 lakh up to 50 lakhAbove 50 lakh up to 200 lakh
Micro Enterprises85% of the amount in default subject to a maximum of  4.25 lakh75% of the amount in default subject to a maximum of  37.50 lakh
75% of the amount in default subject to a maximum of  150 lakh
Women entrepreneurs/ Units located in North East Region (incl. Sikkim) (other than credit facility up to  5 lakh to micro-enterprises)
80% of the amount in default subject to a maximum of  40 lakh 
All other categories of borrowers75% of the amount in default subject to a maximum of  37.50 lakh
ActivityFrom 10 lakh up to 100 lakh
MSE Retail Trade50% of the amount in default subject to a maximum of  50 lakh

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