What is CGTMSE? What are the Benefits of CGTMSE?
Everything you need to know about the CGTMSE credit guarantee.
What is CGTMSE?
CGTMSE, short for Credit Guarantee Funds Trust for Micro and Small Enterprises, is a trust established by the Ministry of Micro, Small and Medium Enterprises (MSME), Small Industries Development Bank of India (SIDBI) and the Govt. of India. It was launched in 2000 to help boost the MSE sector in the country. CGTMSE is a credit guarantee scheme offered under this fund.
The CGTMSE credit guarantee makes it easy for new and existing small businesses to get loans without the need to provide any collateral or external guarantee.
So, to put it simply, it is a guarantee from the government that they will provide your lending bank a guarantee that you will repay the loan taken so that the bank can give you a loan without any worries.
Why CGTMSE?
CGTMSE has been a boon for small businesses in India. We look at the benefits of availing this CGTMSE credit guarantee for your venture.
For Small Businesses:
- This credit guarantee covers up to 85% of the principal amount for eligible borrowers. They do not have to worry about arranging for external third-party guarantee or collateral to secure the loan
- CGTMSE coverage makes the loan application and approval procedure for small businesses – simple and business-friendly
- Borrowers with no business experience can get a small business loan to set up a business after getting approved for CGTMSE coverage
- Small businesses can get rehabilitation assistance from CGTMSE. This means that eligible MSE businesses in a bad condition can get a loan for rehabilitation from the lender
For Lenders:
- CGTMSE coverage reassures the lender that borrowers have met the stringent CGTMSE criteria to be eligible for the loan. The lender only has to look at the viability of the business and the business model to approve the loan
- Lending institutions fret about loan defaulters, especially in the MSME sector. However, they can be free from this stress when it comes to loans with CGTMSE cover since the credit guarantee covers up to 85% of the principal loan amount
Can Banks and Lending Institutions Avail CGTMSE Cover?
CGTMSE has different eligibility criteria for Public Sector Banks, private banks, foreign banks, Non-Banking Financial Companies (NBFCs), Small Finance Banks (SFBs), Regional Rural Banks, etc. All lending institutions are not eligible to sign up for CGTMSE scheme.
To get CGTMSE coverage, banks and other lending institutions have to enter into a one-time agreement with the CGTMSE Trust to become Member Lending Institutions (MLI). Only approved MLIs can apply for CGTMSE guarantee cover for a credit facility sanctioned to an eligible small business (borrower).
Which Type of Borrowers are Covered Under CGTMSE?
New and existing Micro and Small Enterprises (MSEs) engaged in the manufacturing and services sectors are eligible. Educational institutions, agricultural entities, Self-Help Groups (SHGs) and Training Institutions (in these sectors) are not eligible for the CGTMSE credit guarantee.
A Final Word
Now that you know about CGTMSE, you might want to know which small business loan is right for you. Please check our MSME Loans page for details where we have discussed MSME loans offered by different Indian banks, if you are interested.
Disclaimer: This article is for informational purposes only. All details provided here are correct as on the publishing date of this post. Please check with the bank and other official sources before taking any borrowing, investment or related decisions.