Documents required for Loan under CGTMSE Scheme
Below stated are the documents required for a loan under the CGTMSE scheme and its coverage:
- CGTMSE loan application form
- Passport-sized photographs
- Business Plan
- Business incorporation letter
- Company registration certificate
- Business Project Report
- CGTMSE Loan Coverage Letter
- Copy of loan approval from the bank
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:
- Step 1 - Form the business organization - Get necessary licenses and permissions from the respective Govt. authority, etc.
- Step 2 - Prepare the Project Report or Business Plan - To get a bank loan approved under this scheme you must submit a full-proof project report with market analysis, ROI, Break-Even and Payback calculations.
- Step 3 - Apply for the sanction of Bank Loan - After getting the project report, you can apply for the loan. You should talk with at least 2-3 banks nearby.
- Step 4 – Get Coverage under CGTMSE Scheme - After getting the sanction of the loan, the bank will apply for the subsidy to the CGTMSE organization. Before a bank approves your loan under CTGMSE they will need to submit several documents. After the approval, you have to pay the CGTMSE guarantee and service fee if any.
If a lender is sanctioned for credit, he or she must apply for the credit. Terms and conditions are:
- By the end of the calendar quarter of the subsequent calendar year.
- The guarantees start the day the CGTMSE fee is paid.
- In the case of term and composite loans, the cover shall continue for the agreed-upon period.
- The CGTMSE shall cover the Working Capital Loan for a period of 5 years or any other period specified by the borrower.
Interest Rates offered by Banks on Loans under CGTMSE Scheme
According to the Credit Guarantee Scheme, the bank's interest rate depends on the applicant's profile, business requirements, and project cost. As compared with other direct loans, banks offer a very low-interest rate. The coverage offered by Credit Guarantee is capped at 75% of the total project cost.
CGTMSE Achievements FY 2020-2021
|Guarantees Approved || Rs. 45851 crore|
|Guarantees Approved for 23 New Registered NBFCs|| Rs. 17,349 crore|
|Growth in coverage in terms of the amount|| 52%|
|Growth in new products - Retail & Hybrid|| Rs. 16,103 crore|
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.
|Category||Maximum extent of Guarantee where credit facility is|
|Up to 5 Lakh||Above 5 lakh up to 50 lakh||Above 50 lakh up to 200 lakh|
|Micro Enterprises||85% of the amount in default subject to a maximum of 4.25 lakh||75% 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 borrowers||75% of the amount in default subject to a maximum of 37.50 lakh|
|Activity||From 10 lakh up to 100 lakh|
|MSE Retail Trade||50% of the amount in default subject to a maximum of 50 lakh|
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