Complete Guide to Applying for the CGTMSE Scheme – A Step-by-Step Process

February 24, 2025

18 min read

The CGTMSE scheme full form is Credit Guarantee Fund Trust for Micro and Small Enterprises is the full form for CGTMSE which is a Government of India scheme that provides credit guarantee to lenders for loans extended to micro and small enterprises (MSEs), enabling better access to funds and stimulating entrepreneurship.

What is the CGTMSE scheme?

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a Government of India scheme that provides credit guarantee to lenders for loans extended to micro and small enterprises (SMEs), enabling better access to funds and stimulating entrepreneurship. It is governed by the Credit Guarantee Fund Trust for Micro and Small Enterprises and covers MSEs engaged in manufacturing or service activities. The scheme offers collateral-free loans up to ₹2 crore and aims to facilitate the availability of credit to MSEs. Participating Financial Institutions (PFIs) such as banks, financial institutions, and NBFCs apply for CGTMSE coverage on behalf of borrowers. The CGTMSE scheme provides a safety net for lenders offering business loans at Lendingkart by guaranteeing a significant portion of the loan amount, thereby encouraging lending to small and medium enterprises.

How does the CGTMSE scheme work?

The CGTMSE scheme aims to facilitate the availability of credit to MSEs by providing collateral-free loans up to ₹2 crore. It is governed by the Credit Guarantee Fund Trust for Micro and Small Enterprises and covers MSEs engaged in manufacturing or service activities. Participating Financial Institutions (PFIs) such as banks, financial institutions, and NBFCs apply for CGTMSE coverage on behalf of borrowers. Under the CGTMSE framework, working capital loans are more accessible to small businesses, as the credit guarantee reduces the risk for lenders and promotes financial inclusion.

Success of the CGTMSE Scheme

CGTMSE loan full form is Credit Guarantee Fund Trust for Micro and Small Enterprises. The CGTMSE scheme has emerged as a successful tool in enabling SMEs to access formal credit sources. It has created a significant impact in the MSE space by providing credit enhancement and contributing to the nation’s sustainable development. The scheme’s success lies in its ability to mitigate credit risk for lenders while empowering MSEs to thrive and expand. MSMEs can benefit greatly from CGTMSE-backed SME loans, which help them secure the necessary funding without the need for extensive collateral.

Types of credit facilities available under the CGTMSE scheme

The CGTMSE scheme offers various credit facilities to Micro and Small Enterprises (MSEs):

Term loans for acquiring fixed assets or making long-term investments : Term loans as a product is usually designed in a way that it can be best utilized to fund operations or projects which have a big capital influx requirement. The repayment structure of term loans are usually spread out over a couple of months to a few years depending upon the loan amount and the term preferred by both borrower and the lender. The repayment is designed in such a way that through regular repayments, the borrower is able to pay off both interest and capital, and by the last scheduled repayment, there is no outstanding on the borrower. Each repayment has both interest as well as principle component, initially the interest component is higher than the principle component, which gradually reverses over the repayment term.
Working capital loans to meet day-to-day operational expenses : For any business, be it small or large in operational size, having enough working capital is essential. Lack of working capital can have various challenges for the entrepreneur which doesn’t allow them to operate the business smoothly. Lack of enough working capital can pose challenges like delay in salary payments for the workforce, piling up of bills payables for vendors, falling short on business commitments, and difficulty to fulfill unexpected surge in demand. Working capital loans are a boon for businesses, as it helps them operate the business more efficiently and enables them to clear any unforeseen obstacles with ease!
Fund-based and non-fund based credit facilities up to ₹500 lakh per eligible borrower, including letters of credit and bank guarantees : Under CGTMSE there are various types of credit facilities available, for example you can avail fund based and non fund based credit facilities. You just have to meet the eligibility criteria laid out by the scheme and apply for the credit facility.
Under the “Hybrid Security” product, lenders can obtain collateral security for a part of the credit facility, while the remaining part up to ₹500 lakh can be covered under CGTMSE : Let’s suppose you have a bigger debt requirement to fund a project or for expansion, however considering the fact that your collateral may not cover the cost for the entire project and neither does a funding under CGTMSE, in that case you can opt for a hybrid funding where a part of the debt funding will be covered by conventional collateral based loan and the other part up to INR 500 lakhs will be covered under CGTMSE. This way you can benefit from CGTMSE by not worrying about the asset collateral to cover the entire debt requirement.
These flexible financing options enable MSEs to access credit without collateral, sustain their businesses, and drive economic growth : Debt funding is an essential part of operating a business, an entrepreneur may face multiple obstacles related to lack of funds, and having own funds to overcome those obstacles may not be a viable solution. It is imperative for an entrepreneur to know how to make use of leverage. By easy availability of debt funding, entrepreneurs can have the headspace to run their business efficiently and increase profitability without worrying too much about capital availability. As long as the capital is being invested in productive means, debt financing is a great thing!

The CGTMSE scheme supports the disbursement of Mudra loans by guaranteeing repayment, thus enabling micro-enterprises to obtain financing with greater ease and confidence.

Features and benefits of CGTMSE scheme

Collateral-Free Loans: The CGTMSE scheme offers collateral-free loans to Micro and Small Enterprises (MSEs), easing the burden of providing external collateral or third-party guarantees. For small businesses, getting a collateral in place that can pledged to secure a debt funding can be difficult, first of all having such a collateral is difficult for small businesses, secondly even if the businesses have that kind of collateral available, keeping it as a security to secure debt may not make sense as these assets may be essential for business operations. Hence, collateral free loans offered under CGTMSEs are a boon for small businesses with either lack of assets to give as collateral or misalignment of strategy to put assets as a collateral.
Loan Amount: MSEs can access credit facilities up to ₹200 lakh under the scheme, with Regional Rural Banks (RRBs) and specific financial institutions offering credit facilities up to ₹50 lakh. CGTMSE offers credit facility to a wide array of small businesses, the maximum loan amount can vary depending upon the financial institutions you’re applying for credit facility under CGTMSE. For businesses, they can avail loans up to INR 200 lakh of INR 2 crore from the regional rural banks, while some financial institutions may offer up to INR 50 lakhs under the CGTMSE scheme.
Guarantee Coverage: CGTMSE provides a guarantee covering 75-85% of the repayment amount in case of default on the principal loan, offering financial security to borrowers. The government understand the challenges associated with operating a small business, hence they offer any support possible to the entrepreneurs, as well as the lending institutions to ensure that none of the participants lose money. For small businesses, CGTMSE scheme allows them to avail credit facilities from the financial institutions collateral free, and with ease. However, since the credit facility is being availed by the small businesses without any collateral, it poses a big non-repayment or default risk to the lenders. Hence, the government guarantees coverage to the lenders, as well as the business owners. I.e. Due to whatever reason, in case the borrower defaults on the loan, the government will cover up to 75-85% of the repayment amount of principal. This gives both lenders as well as the borrowers some cushion to increase lending in the market which will ultimately lead to easier availability of funds and profitability in the small business sector.
Eligibility: Businesses in manufacturing and service sectors, excluding educational and agricultural activities, are eligible for the scheme, promoting entrepreneurship and economic growth. The government of India is actively trying to promote entrepreneurship in the country. Having entrepreneurs at the grass root level enables the country to do exponentially well in economic growth. For the same reason, the CGTMSE scheme has been introduced. Eligibility to access debt funding through CGTMSE scheme is not stringent with a view to promote economic growth. The government wants to promote manufacturing and the service sector in the nation as these are the biggest drivers for economic growth, hence, to promote these businesses the government actively promotes various schemes that enable these businesses to grow and help the economy grow with them. Under CGTMSE, businesses in the manufacturing sector, and service sector can easily apply for an unsecured credit facility to grow and enhance their presence in the market.

CGTMSE scheme eligibility

Business Classification: Micro and Small Enterprises (MSEs) engaged in manufacturing or service activities, excluding retail trade, educational institutions, agricultural activities, and self-help groups, are eligible for the CGTMSE scheme. Credit guarantee fund scheme is specifically designed for micro and small enterprises operating in the manufacturing and service industries, as these are the key drivers of economic growth for a country and promoting these industries at the grass-root level can help the nation grow at an exceptional pace. Although other industries are crucial for the development too, however the credit guarantee scheme for micro and small enterprises is geared towards only manufacturing and service industries. The government actively promotes other industries like retail trade, educational institutions, agricultural activities, and self-help groups too but businesses in these industries unfortunately are not eligible to secure CGTMSE loan for new business.
Loan Amount: MSEs seeking credit facilities up to ₹200 lakh are eligible under the scheme, with specific financial institutions and Regional Rural Banks (RRBs) offering loans up to ₹50 lakh. You may be wondering what is the CGTMSE loan limit? As these credit facilities are set up for micro and small enterprises, the loan limit cannot be exceedingly high. The loan limit can also depend upon the nature of the lender – For example regional rural banks offer credit schemes under CGTMSE up to INR 50 lacs.
Turnover Criteria: MSEs with an annual turnover not exceeding ₹250 lakh for manufacturing units and ₹200 lakh for service enterprises are eligible for CGTMSE coverage, promoting financial inclusion and support for small businesses.

How to Apply for CGTMSE loan scheme

Identify a participating financial institution (PFI) such as a bank or NBFC that offers loans under the CGTMSE scheme. It is imperative to know which financial institutions lend under CGTMSE scheme, make a list of all the institutions and figure out borrowing from which institution under this scheme would be most convenient for you, as factors such as ease of repayment, etc also makes a difference for the borrowers.
CGTMSE scheme documents required are fairly straightforward. Compile the necessary documentation, including business plans, financial statements, and any other documents required by the PFI. Having clear CGTMSE loan documents can help accelerate the process of loan application approval.
Submit CGTMSE application form along with the required documents to the selected PFI.
The PFI will evaluate your application, assess the feasibility of your business plan, and verify your eligibility for the scheme. Upon their careful consideration, the outcome of approval or rejection will be then communicated to you through communication channels like a call or message.
If approved, the PFI will apply for a guarantee cover from CGTMSE for the sanctioned loan amount. This CGTMSE guarantee fee cover will act as a security to the lending institutions. In case of a default of loan repayment, the government will cover between 75-85% of the payable principal amount of the sanctioned mse loans.
Once the guarantee is in place and all requirements are met, the PFI will disburse the loan to your business.

Limitations of the CGTMSE Scheme

Loan Size Limit: The CGTMSE scheme has a maximum loan limit of ₹200 lakh, which may not be sufficient for larger-scale enterprises requiring substantial funding. However, as the name suggests, this scheme is specifically designed for micro and small enterprises, and the fact that there is a credit guarantee for the debt funding that will cover 75-85% of the outstanding amount in case of a default, INR 200 lac limit can be really useful for the smaller businesses.
Sectoral Restrictions: Certain sectors like agriculture, retail trade, and self-help groups are excluded from the scheme, limiting its coverage to specific types of businesses. Credit guarantee fund scheme is specifically designed for micro and small enterprises operating in the manufacturing and service industries, as these are the key drivers of economic growth for a country and promoting these industries at the grass-root level can help the nation grow at an exceptional pace. The credit guarantee scheme for micro and small enterprises is targeted towards only manufacturing and service industries. The government actively promotes other industries like retail trade, educational institutions, agricultural activities, and self-help groups too but businesses in these industries unfortunately are not eligible to secure CGTMSE loan for new business.
Collateral Requirement: While the scheme offers collateral-free loans, there are instances where collateral security may be required, especially for higher loan amounts, impacting accessibility for some MSEs. A lender covers their risk by asking for a collateral, so that in case of default, the lender can recover the due amount by liquidating the asset put up as the collateral. Since, loans under CGTMSE are covered by credit guarantee up to 75-85% and the loan is targeted towards promoting business among micro and small enterprises, there is no collateral requirement.
Restrictions on Borrower Types: Not all types of borrowers, such as self-help groups, are eligible under the CGTMSE scheme, restricting its reach to a specific category of enterprises.

Also Read: Top 7 Government Loan Schemes for Small Business in India

CGTMSE coverage criteria

Here are the key points about CGTMSE coverage criteria:

CGTMSE provides guarantee coverage of 75-85% of the credit facility amount in case of default by the borrower.
The maximum loan amount covered under the scheme is ₹500 lakh per eligible borrower for fund-based and non-fund based credit facilities.
Under the “Hybrid Security” product, lenders can obtain collateral security for a part of the credit facility, while the remaining part up to ₹500 lakh can be covered under CGTMSE.
The guarantee covers both term loans and working capital facilities extended to eligible MSEs.
The guarantee commences from the guarantee start date and runs through the agreed tenure of the term loan or for a period of 5 years in case of working capital facilities.

Which enterprises can avail of the CGTMSE fund?

The full form of CGTMSE is Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) extends its support to specific types of enterprises in India:

Eligible Borrowers: New and existing Micro and Small Enterprises (MSEs) engaged in manufacturing or service activities, excluding sectors like agriculture and self-help groups, can benefit from the scheme. The government actively promotes other industries like retail trade, educational institutions, agricultural activities, and self-help groups too but businesses in these industries unfortunately are not eligible to secure CGTMSE loan for new business. Only businesses in manufacturing and service industries pass the credit guarantee scheme eligibility test.
Service Sector Inclusion: All activities falling under the service sector as per the MSMED Act, 2006 are eligible for coverage under the CGTMSE scheme, broadening the scope of support to service-based MSEs.
Transport Operators: Small road and water transport operators are also eligible for guarantee cover under the scheme, facilitating access to credit for this specific segment of MSEs.
IT PAN Requirement: Borrowers are advised to obtain an Income Tax Permanent Account Number (IT PAN) for credit facilities above ₹5 lakh, although it is not mandatory for availing the guarantee cover.

Also Read: Government MSME Schemes

CGTMSE charges

Here is listed below in the table CGTME fee structure –

Loan Amount Range	Standard Rate (per annum)
0-10 lakh	0.37
Above 10-50 lakh	0.55
Above 50-1 crore	0.60
Above 1-2 crore	1.20
Above 2-5 crore	1.35

The table outlines the standard rates charged by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) per annum based on different loan amount ranges. CGTMSE fee depending on the size of the loan, with CGTMSE rate of interest ranging from 0.37% for loans up to 10 lakh to 1.35% for loans above 2-5 crore. You may be wondering – is CGTMSE fee charged every year? The answer is YES! CGTMSE fee means the annual guarantee fee (AGF). AGF will be charged on the guaranteed amount for the first year and on the outstanding amount for the remaining tenure of the credit facility

Summary

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is one such scheme of the Government of India, through which access to credit for micro and small enterprises shall increase due to collateral-free loans up to ₹2 crore. This shall be able to stimulate entrepreneurship and support MSEs engaged in manufacturing or services sectors through safety netting for lenders. Banks and NBFCs apply for CGTMSE coverage on behalf of the borrower. Coverage reduces the credit risk involved in disbursing loan advances to MSEs as huge parts of the loan amount are guaranteed under this scheme.

The CGTMSE scheme has been successful to date in ensuring credit access and has, hence, had a positive impact on the MSE landscape by sustainable development. It offers various credit facilities such as term loans for long-term investment, working capital loans for daily operations, and even both fund-based and non-fund-based credit facilities, which can go up to ₹500 lakh. The scheme also introduces “Hybrid Security,” whereby lenders can combine loans collateral-backed with CGTMSE coverage, hence broadening the financing avenues for enterprises.

One of the distinct features of the scheme under the CGTMSE is its collateral-free loans, a savior for small businesses that probably don’t have enough assets to create security. MSEs can avail loans up to ₹2 crore, and RRBs up to ₹50 lakh. The guarantee will cover 75-85% of the amount of principal loan in case of defaults, thereby providing a cushion to the lending avenue.

The scheme is open for MSEs from the manufacturing and service sectors, except for certain specified sectors like agriculture, retail, etc. Those clients would have to come under the defined limits of turnovers, which are ₹250 lakh in manufacturing and ₹200 lakh in the case of services. The loan application process will begin by choosing a participating institution to which all the documents will be collected and then preparing the loan application, post which, the PFI checks the viability of the business to make an application for CGTMSE guarantee coverage.

Although the CGTMSE scheme has all its merits, it still lacks maximum loan size of ₹200 lakh and some barriers as regards exclusion for certain sectors. The CGTMSE scheme is an important resource for MSEs, providing them with much-needed support in securing credit and thus contributing to boosting economic growth.

Frequently Asked Questions:

1. What is a CGTMSE loan?

A CGTMSE loan is a collateral-free credit facility provided to micro and small enterprises (MSEs) by participating financial institutions, with a guarantee from the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).

2. What is the maximum loan limit for CGTMSE?

The maximum loan limit under the CGTMSE scheme is ₹200 lakh, with specific financial institutions and Regional Rural Banks (RRBs) offering loans up to ₹50 lakh

3. Which bank can give a CGTMSE loan?

Major public and private sector banks, including State Bank of India, United Bank of India, and Punjab National Bank, are among the 141 participating financial institutions that provide CGTMSE loans.

4. How much is the CGTMSE fee?

The CGTMSE charges a one-time guarantee fee ranging from 0.37% to 1.35% of the sanctioned loan amount, depending on the loan size

5. Who is eligible for CGTMSE?

Micro and Small Enterprises (MSEs) engaged in manufacturing or service activities, excluding sectors like agriculture and self-help groups, are eligible for the CGTMSE scheme

6. Is the CGTMSE fee charged every year?

Yes, the CGTMSE charges an annual service fee in addition to the one-time guarantee fee

7. What is the lock period for CGTMSE?

There is no specific lock-in period mentioned for CGTMSE loans. The guarantee commences from the guarantee start date and runs through the agreed tenure of the term loan or for a period of 5 years in case of working capital facilities.