11 October, 2023

For small businesses in India, securing collateral-free credit has always been a challenge. However, the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme aims to address this issue by providing a guarantee for loans extended to eligible small businesses.

Launched in the year 2000, the scheme is a collaboration between the Government of India and the Small Industries Development Bank of India (SIDBI). Under the CGTMSE scheme, MSEs can avail of collateral-free credit facilities. This means they can obtain loans without the need for collateral or third-party guarantees.

Recently, there have been some significant updates to the scheme, including an increase in the scheme limit from ₹2 crores to ₹5 crores. This means that businesses can now avail of collateral-free credit up to ₹5 crores from banks such as HDFC Bank. This represents an increase of ₹3 crores.

Impact of increase in CGTMSE scheme limit on MSEs

This revision is said to have a positive impact on the credit flow to micro and small enterprises (MSEs), which serve as the backbone of the Indian economy. These enterprises play a crucial role in generating employment opportunities and driving economic growth. However, they often face challenges in accessing credit compared to larger enterprises.

If you own an MSE in India, increase in the credit limit can offer several benefits to you:

  • Enhanced financing: A higher credit limit allows you to access larger loan amounts. This enables you to meet financial requirements for business expansion, working capital, technology adoption, infrastructure development, and other growth initiatives.

  • Improved competitiveness: You can invest in modern machinery, technology upgrades, research and development, and skilled manpower. This enhances your productivity, efficiency and product quality, thereby improving your company's competitiveness in the market. It enables you to innovate, diversify and adapt to changing market dynamics more effectively.

  • Job creation and economic growth: You can invest in expansion projects, which often results in the creation of additional job opportunities. This contributes to overall economic growth, reduces unemployment, and improves livelihoods in local communities.

Types of credit facilities available under the CGTMSE scheme

This scheme provides invaluable support to micro and small enterprises in India by offering two key types of credit facilities: Working Capital Solutions and Term Loan

Working Capital Solutions

As the lifeblood of any business, working capital ensures the smooth day-to-day operations of MSEs. Recognising this, the CGTMSE scheme allows you to access collateral-free credit for your firm's working capital requirements. This provision enables you to obtain the necessary funds to manage inventory, pay salaries, meet overhead expenses, and address short-term financial needs.

Term Loans

The CGTMSE scheme facilitates collateral-free Term Loans to address the long-term financial requirements of MSEs. The scheme allows you to access Term Loans without the burden of providing tangible assets as security. These loans can be used for purchasing machinery and equipment, expanding production facilities, investing in technology upgrades, or launching new product lines.

Additional benefits of the CGTMSE scheme

  • Collateral-free credit: One of the most significant advantages of the scheme is the provision of collateral-free credit. If you have limited assets or lack collateral, you can still access credit facilities without having to pledge assets or seek third-party guarantees.

  • Reduced annual guarantee fee: The recent updates to the CGTMSE scheme have resulted in a reduction in the annual guarantee fee to as low as 0.37% p.a. Thus, you can now avail of the scheme's benefits at a reduced guarantee fee.

  • Increased credit limit: With the expansion of the scheme coverage from ₹2 crores to ₹5 crores, you now have access to a higher credit limit. This increased borrowing capacity can empower your business to undertake larger projects, expand its operations, and invest in growth opportunities that were previously out of reach.

  • Simplified loan application process: The CGTMSE scheme has simplified the loan application process for MSEs. Participating banks and financial institutions are well-versed with the scheme's guidelines and requirements, making it easier for you to apply for loans and obtain timely credit approvals.

Eligibility criteria under the CGTMSE scheme

The CGTMSE scheme has specific eligibility criteria that your business must meet to avail of its benefits. To qualify for the scheme, your business must fall under the category of MSEs, as defined by the MSMED Act, 2006.

The Act provides separate criteria for manufacturing and service enterprises based on their investment in plant and machinery / equipment. The business should have a good track record and not be a defaulter to any bank or financial institution. It should also have a viable and profitable business model, as assessed by the lending institution.

The scheme is available to both new and existing businesses, providing you with an opportunity to obtain collateral-free credit and expand your operations.

List of documents required for loans under the CGTMSE scheme.

When availing of a loan under the CGTMSE scheme, you are required to submit the following documents:

  1. Correctly filled out CGTMSE loan application form, accompanied by the necessary passport-sized photographs.

  2. Proof of business incorporation or company registration certificate to establish the legal existence of your business.

To learn more about the various products and services at HDFC Bank that can benefit your enterprise, you can check out the MyBusiness page here.

*Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. HDFC Bank recognises the challenges entrepreneurs face while acquiring capital. Thus, HDFC Bank has created MyBusiness, a one-stop solution that gives you easy access to loans, digital solutions and provides you with the essential knowledge you need to run your business. With HDFC Bank MyBusiness, you can scale up, expand your operations, and nurture your business.

To learn more about the various products and services at HDFC Bank that can benefit your enterprise, you can check out the MyBusiness page here.

Related Articles
PIS Account
Atal Pension Yojana Scheme