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 Credit Guarantee Fund Trust for Micro and Small Enterprises on August 20, 2000.

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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Features of CGTMSE Loan

The scheme aims to encourage and help small business owners to avail a collateral free loan to start their business without the fear of default. 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.

CGTMSE 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 the guarantee scheme, in addition to 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 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.

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.


Which lending institutions are eligible to become MLIs in the scheme?

All scheduled banks, private banks, foreign banks, rural banks, urban banks, or other banks directed by the Indian government are eligible to become MLIs under the scheme. However, Regional Rural Banks (RRBs) have to fulfil the different eligibility criterion. RRBs which are classified by NABARD under the sustainable and currently viable category with positive worth are also eligible for CGTMSE guarantee cover.

When can the lending institutions apply for guarantee cover in respect to eligible credit facilities under the CGTMSE scheme?

Eligible financial institutions have to enter into a one-time agreement with CGTMSE to become MLIs. Then only MLIs can apply for a guarantee cover in respect to the application approved in the quarter January-March, April-June, July-September, and October-December before the quarter ends.

Can CGTMSE recheck on the applications sanctioned by the MLIs for guarantee cover?

Every MLI has to sanction only viable projects. CGTMSE trusts the MLIs completely, and they don’t recheck or revaluate the sanctioned business proposals. If the sanctioned proposal satisfies the CGTMSE’s basic norms, then the guarantee cover will be guaranteed.

Are water and road transporters eligible for cover under the scheme?

Yes, water and road transporters are eligible to get cover under the CGTMSE scheme and a business loan from MLIs. All small businesses running in the country and seeking a loan for business can ask the lender to add CGTMSE cover to their small business loan application.

Is having a PAN compulsory to become eligible for the loan scheme?

Yes, the borrower needs to have PAN Card to avail the lending facility from the MLI. Also, as per the section 139A (5) and 272C of the Income Tax Act, 1961, it is mandatory to have PAN card on all tax documents, including loan, returns, appeals, challans, etc. However, for other types of loan, it is not compulsory to have PAN in all loan applications.

Can one obtain a credit facility from more than one MLI?

The credit facility can be extended from more than one MLI. You can apply for the facility from two or more MLIs jointly or separately from all MLIs. However, the maximum cap is Rs. 100 lakh per borrower.

Can an eligible lender offer term loan or working capital loan and still get the proposal covered under the scheme?

The loan lenders can extend both term loan and working capital loan and still get the guarantee cover for the proposal under the CGTMSE scheme.

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