Credit Guarantee Scheme for Start-ups notified by the Department for Promotion of Industry and Internal Trade

Terms of use

Terms of Use

The use of this site and the content contained therein is governed by the Terms of Use. When you use this site you acknowledge that you have read the Terms of Use and that you accept and will be bound by the terms hereof and such terms as may be modified from time to time.

All text, graphics, audio, design and other works on the site are the copyrighted works of nasscom unless otherwise indicated. All rights reserved.
Content on the site is for personal use only and may be downloaded provided the material is kept intact and there is no violation of the copyrights, trademarks, and other proprietary rights. Any alteration of the material or use of the material contained in the site for any other purpose is a violation of the copyright of nasscom and / or its affiliates or associates or of its third-party information providers. This material cannot be copied, reproduced, republished, uploaded, posted, transmitted or distributed in any way for non-personal use without obtaining the prior permission from nasscom.
The nasscom Members login is for the reference of only registered nasscom Member Companies.
nasscom reserves the right to modify the terms of use of any service without any liability. nasscom reserves the right to take all measures necessary to prevent access to any service or termination of service if the terms of use are not complied with or are contravened or there is any violation of copyright, trademark or other proprietary right.
From time to time nasscom may supplement these terms of use with additional terms pertaining to specific content (additional terms). Such additional terms are hereby incorporated by reference into these Terms of Use.

Disclaimer

The Company information provided on the nasscom web site is as per data collected by companies. nasscom is not liable on the authenticity of such data.
nasscom has exercised due diligence in checking the correctness and authenticity of the information contained in the site, but nasscom or any of its affiliates or associates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this site. The information from or through this site is provided "as is" and all warranties express or implied of any kind, regarding any matter pertaining to any service or channel, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement are disclaimed. nasscom and its affiliates and associates shall not be liable, at any time, for any failure of performance, error, omission, interruption, deletion, defect, delay in operation or transmission, computer virus, communications line failure, theft or destruction or unauthorised access to, alteration of, or use of information contained on the site. No representations, warranties or guarantees whatsoever are made as to the accuracy, adequacy, reliability, completeness, suitability or applicability of the information to a particular situation.
nasscom or its affiliates or associates or its employees do not provide any judgments or warranty in respect of the authenticity or correctness of the content of other services or sites to which links are provided. A link to another service or site is not an endorsement of any products or services on such site or the site.
The content provided is for information purposes alone and does not substitute for specific advice whether investment, legal, taxation or otherwise. nasscom disclaims all liability for damages caused by use of content on the site.
All responsibility and liability for any damages caused by downloading of any data is disclaimed.
nasscom reserves the right to modify, suspend / cancel, or discontinue any or all sections, or service at any time without notice.

For any grievances under the Information Technology Act 2000, please get in touch with Grievance Officer, Mr. Anirban Mandal at data-query@nasscom.in.

New

See all

No notification found.

Credit Guarantee Scheme for Start-ups notified by the Department for Promotion of Industry and Internal Trade

Garima Prakash

@GarimaP

October 17, 2022

Public Policy

243

Start-ups typically don’t have any collateral to pledge to avail loans, thus they end up relying on cash-flow and receivables to avail loans. The high default-risk means that the loans are difficult to avail, or they come at a high interest rate. In a first of its kind scheme, the Credit Guarantee Scheme for Startups (CGSS) notified by the Department for Promotion of Industry and Internal Trade (DPIIT) aims to address this challenge. The scheme is available to 80,727 DPIIT registered start-ups (as on October 14, 2022). The scheme aims to make it easier for the start-ups to get loans of up-to INR 10 crore from commercial banks, venture debt funds and Non-Banking Financial Companies (NBFC). The scheme does this by guaranteeing repayment of the loan to the lender in the event of a default by startups, in exchange of a fee.

Unique Features:

This is the only credit guarantee scheme for DPIIT recognised start-ups. As against this, the existing credit guarantee scheme for MSMEs can be availed by startups if they are registered as a Micro, Small or Medium Enterprise (MSME).[i]
The CGSS extends cover to venture debt funds registered with the Securities Exchange Board of India (SEBI). As against this, the existing credit guarantee scheme for MSMEs is applicable only to scheduled commercial banks, Small Industries Development Bank of India (SIDBI), rural banks etc.
The CGSS permits a guarantee cover of up to INR 10 crores per borrower as compared to the scheme for MSMEs where the cover is up to 1.5 crores.

Eligibility:

Eligible startup:
- Start-up should be recognised by DPIIT.
- Start-up should have reached a stage of stable revenue stream, as assessed from audited monthly statements over a 12-month period.
- Start-up should not in default to any lending/investing institution and not classified as a non-performing asset.
- The eligibility of the borrower start-up should be certified by the Member Institution (MI) for the purpose of guarantee cover.

MI means an eligible lending/investing institution. It includes:
- Scheduled Commercial Banks and Financial Institutions
- Reserve Bank of India (RBI) registered NBFCs having a rating of BBB and above as rated by external credit rating agencies accredited by RBI and having minimum net-worth of INR 100 crores.
- SEBI registered Alternative Investment Funds (AIFs).

Responsibilities of MI include:
- Evaluate credit applications using prudent banking judgement.
- Exercise the same diligence in recovering the dues and safeguarding the interest of the Trust as it might have exercised if no guarantee had been furnished by the Trust.

Guarantee under the scheme:

Guarantee Fees:
- For transaction-based guarantee (i.e., for loans) = A guarantee fee must be paid by MI, at the rate of 2% per annum (pa) of the disbursement/outstanding amount; 1.5% in case of units from North-East or women entrepreneurs.
- For umbrella-based guarantee (i.e., for venture debts) = A guarantee fee must be paid upfront by MI, in the form of an Annual Commitment Charge of 0.15% pa of the proposed pooled investment in start-ups. Thereafter, 1% of the pooled investment in start-ups must be paid as a one-time fee, at the time of invocation of guarantee claim. The guarantee cover will commence from the date of payment of commitment charges and shall run through the life of the venture debt fund, provided the borrowers being covered are eligible for coverage under the scheme and commitment charges are paid from the first year of operations of venture debt fund annually till its closure.

Types of guarantees:
- Transaction-based guarantee cover means guarantee cover obtained by the lending/investing institution on single eligible borrower basis. This cover is mainly designed for loans by banks, NBFCs etc.
- Umbrella-based guarantee cover means guarantee cover obtained by the lending/investing institution for a group of eligible borrowers. This cover is mainly designed for venture debt funds.

Types of credit eligible for guarantee cover: working capital, subordinated debt/mezzanine debt, debentures, optionally convertible debt and other fund-based or non-fund-based facility which has crystallised as a debt obligation.

Guarantee cover:
- For transaction-based, cover is to the extent of 65-80% of the default amount (depending on the original loan sanction amount), subject to a maximum of INR 10 crores per borrower.
- For umbrella-based, cover is to the extent of actual losses or up to 5% of pooled investment on which cover is being taken (whichever is lower), subject to a maximum of INR 10 crores per borrower.
- Only the unsecured part of a credit will be covered.

Management of the Trust:

The National Credit Guarantee Trustee Company Ltd. (NCGTC) will manage the day-to-day operations of the CGSS as the Trustee.
Management Committee to be constituted by DPIIT to overlook the affairs of the trust.
Composition of the Management Committee - DPIIT Secretary, DPIIT Additional Secretary, DPIIT Joint Secretary (startups), Department of Financial Services Joint Secretary, Chief Executive Officer of NCGTC, experts from the ecosystem as may be nominated by DPIIT.

For more information or discussion on this topic, kindly write to garima@nasscom.in or tejasvi@nasscom.in with a copy to policy@nasscom.in.

[i] https://msme.gov.in/sites/default/files/CredirGuranteeFundScheme_1.pdf.

Start-ups credit credit guarantee DPIIT

Disclaimer

That the contents of third-party articles/blogs published here on the website, and the interpretation of all information in the article/blogs such as data, maps, numbers, opinions etc. displayed in the article/blogs and views or the opinions expressed within the content are solely of the author's; and do not reflect the opinions and beliefs of NASSCOM or its affiliates in any manner. NASSCOM does not take any liability w.r.t. content in any manner and will not be liable in any manner whatsoever for any kind of liability arising out of any act, error or omission. The contents of third-party article/blogs published, are provided solely as convenience; and the presence of these articles/blogs should not, under any circumstances, be considered as an endorsement of the contents by NASSCOM in any manner; and if you chose to access these articles/blogs , you do so at your own risk.

Download Attachment

Garima Prakash

Manager, Public Policy and Government Affairs

Reach out to me for all things policy about e-commerce, international trade, export controls, start-ups and fintech

Nasscom Public Policy Highlights | ...

Sudipto