Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry has announced a major expansion of the Credit Guarantee Scheme for Startups (CGSS). This expansion aims to significantly enhance collateral-free debt funding to startups and foster an innovation-driven and self-reliant economy.
Background: About CGSS
- It was originally notified in 2022 as part of the Startup India Action Plan launched in 2016.
- Objective: To finance eligible startups, by enabling collateral free debt funding to startups through avenues such as working capital, term loans, and venture debt.
- It provides credit guarantees up to a specified limit against credit instruments extended to startups by
- Scheduled Commercial Banks, All India Financial Institutions (AIFI)
- Non-Banking Financial Companies
- SEBI registered Alternative Investment Funds (AIFs).
- The Union Budget 2025–26 had also proposed enhanced credit availability through greater guarantee cover under CGSS to catalyse early-stage funding in the startup ecosystem.
Key Highlights of Expanded CGSS
Increased Guarantee Cover and Limit
- Guarantee ceiling per borrower raised from Rs. 10 crore to Rs. 20 crore
- Extent of guarantee cover:
- 85% of the default amount for loans up to Rs. 10 crore
- 75% for loans above Rs. 10 crore
Lower Annual Guarantee Fee (AGF)
- AGF reduced from 2% to 1% for startups in 27 Champion Sectors identified under ‘Make in India’. These sectors have been identified to provide a thrust to India’s manufacturing and service capabilities
- This move will reduce the cost of capital and boost innovation in critical manufacturing and service domains.
Strategic Objectives and Impact
- Stronger Startup Financing Ecosystem: The expanded scheme is expected to attract more financial institutions, increasing the flow of debt capital to early-stage and growth-stage startups.
- Support for R&D and Innovation: With reduced risk perception and improved runway, startups will have greater freedom to pursue experimentation, R&D, and technology development.
- Operational Reforms: Based on stakeholder consultations, the scheme includes enabling provisions and procedural reforms to make it more accessible and effective for both lenders and borrowers.
- Alignment with Viksit Bharat Vision: The enhancements align with the government’s long-term vision of making India a developed innovation hub by promoting entrepreneurship, job creation, and self-reliance.