Expanded credit guarantee scheme for start-ups to reduce perceived risks of lending

The annual guarantee fee for start-ups in 27 champion sectors has also been reduced to 1% (per annum) from 2%

The expanded credit guarantee scheme for start-ups (CGSS)–which increases the ceiling on guarantee cover per borrower–will further reduce the perceived risks associated with lending to start-ups in established financial institutions. This will enable greater financial flow and runway for start-ups to undertake research and development (R&D), experimentation, and create cutting-edge innovation and technologies, according to a government statement.

The Department for Promotion of Industry and Internal Trade (DPIIT) has notified the expansion of the CGSS, doubling the ceiling on guarantee cover per borrower to ₹20 crore from ₹10 crore. “The extent of guarantee cover provided has also been increased to 85 per cent of the amount in default for loan amount up to ₹10 crore and 75 per cent of the amount in default for loan amount exceeding ₹10 crore,” the statement noted.

The annual guarantee fee for start-ups in 27 champion sectors has also been reduced to 1 per cent (per annum) from 2 per cent. The champion sectors have been identified by the government under ‘Make in India’ to provide a thrust to India’s manufacturing and service capabilities. “The reduction in AGF for Champion Sectors will make funding more attractive for the identified sectors and boost innovation in domestic manufacturing and self-reliance,” it said.

The Startup India initiative was launched on January 16, 2016, to create a vibrant ecosystem for these entities in the country.

Under the plan, the government had rolled out the CGSS on October 6, 2022 to provide guarantee up to a specified limit against credit instruments extended to start-ups by Scheduled Commercial Banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).