CGTMSE Scheme

CGTMSE is short for Credit Guarantee Fund Trust for Micro and Small Enterprises and it catalyzes the flow of institutional credit to Micro & Small Enterprises (MSEs).

Here we will discuss this scheme in detail, along with its eligibility, application process, documents required, etc.

Which Banks and Lending Institutions Provide CGTMSE Loans?

The most important information related to a scheme is where to apply. So let’s begin with that.

You cannot apply with CGTMSE for loans taken from private individuals or unrecognized lending institutions that CGTMSE does not mention. 

Mentioned below is a list of lending institutions that are recognized by the CGTMSE scheme:-

• Scheduled Commercial Banks (SCBs)

• Regional Rural Banks (RRBs)

• Small Finance Banks (SFBs)

• Non-banking Financial Companies (NBFCs)

• Small Industrial Development Bank of India (SIDBI)

• National Small Industries Corporation (NSIC)

• North Eastern Development Finance Corporation Ltd. (NEDFi)

Success of The CGTMSE Scheme

The government and The Ministry of Micro, Small and Medium Enterprises, and Small Industries Development Bank of India (SIDBI) jointly contribute to this scheme in a 4:1 ratio. 

• Till 2010, they contributed Rs.1,906.55 Crore towards the Credit Guarantee Fund Trust, which helped implement the CGTMSE scheme.

• Since the launch of the scheme, the government has reached out to many small and medium businesses. 

• According to the data provided by the government, it has approved over 3,00,000 proposals and has successfully covered around Rs.11,550.61 Crore worth of credit. 

• The scheme was able to help people across 35 states and union territories.

• In the year 2000-2001, the first year in which the scheme was operational, around 951 proposals were approved, and credit coverage of Rs. 606 Lakh was made. 

• The scheme is still operating, and the government has increased the approval numbers by 52%, taking it to 43 Lakh in the financial year 2020-2021. 

• A credit guarantee of Rs.1 Lakh Crore was approved in just 7 months of the current financial year 2023-24.

Who is Eligible for The CGTMSE Scheme?

The CGTMSE scheme covers small and medium enterprises in most industrial sectors. The CGTMSE scheme eligibility criteria are mentioned here -

• Indian citizens aged 18 and above

• New as well as existing enterprises

• Enterprises within the manufacturing sector

• Enterprises in service activities as per MSMED Act, 2006

• Small road and water transport loans

• Credit facilities need to be taken from a single enlisted lending institution, as mentioned by the CGTMSE scheme

• Enterprises that State Level Institution/NSINEDFi already supports

What are The Documents Needed for CGTMSE Loan?

Here is a list of documents that you need to keep ready if you want to apply for a loan under the CGTMSE scheme -

• CGTMSE loan application form with Passport-sized photographs

• Self-drafted or professionally drafted Business Plan

• Business incorporation letter / Company registration certificate

• Business Project Report

• CGTMSE Loan Coverage Letter

• Copy of loan approval from the bank

• Other documents required by the lending institution

How to Apply for a CGTMSE Loan?

Small and medium enterprises seeking to benefit from the scheme will have to apply for a CGTMSE loan separately. Here are the steps borrowers need to follow to apply for a loan with CGTMSE collateral coverage:-

• Step 1

Borrowers must register their private limited company, limited liability partnership, one-person company, or a company proprietorship and procure the necessary approvals and tax registrations. Borrower(s) will not be able to apply for a loan without being registered in the government database.

• Step 2

The borrowers need to make a detailed business plan consisting of the business model, promoter profile, projected financials, and so on. This report must be submitted to the lending institution from which the loan needs to be procured. This business plan will decide the eligibility of the loan amount.

• Step 3

When you file the business plan and submit it to the lending authority, you must also submit a CGTMSE application with all the necessary details. You will be able to download this application from the official website.

• Step 4

The lending authority will then start the analysis and verification process before sanctioning the loan. The lending authority will do so by following its policies. The time needed to sanction a loan varies.

• Step 5

The lending institution will then apply to CGTMSE on your behalf to obtain the collateral guarantee. After CGTMSE approves the request, you must make the one-time CGTMSE fee and the service charges according to the loan amount sanctioned.

Important Note: CGTMSE will only cover the collateral for a part of your loan. You will have to produce some security coverage for the rest of the credit amount.

Limitations of the CGTMSE Scheme

Now that you know the eligibility criteria for CGTMSE loans, you also need to remember that there are certain limitations on who can claim the scheme and how it will work. Here are a few exceptions you need to keep in mind while applying for a CGTMSE loan:-

• CGTMSE-backed loans are not given to enterprises like Educational institutions, agriculture, training institutions, and Self-Help Groups (SHGs).

• If your enterprise is already under a government or private scheme that covers credit risks, you cannot apply for this scheme.

• You cannot claim coverage for more than Rs.2 crore.

• You can claim coverage for up to 75% of the credit amount only. Women can claim coverage of up to 80% of the credit amount.

• The one-time CGTMSE guarantee fee and the annual service fees will not qualify for guarantee cover.

• Loans taken from unknown sources and private persons will not qualify for CGTMSE coverage.

• The loan cover guarantee can be availed only for 5 years or a block of 5 years for working capital.

Special Benefits of CGTMSE Loans

While most CGTMSE scheme eligibility criteria apply to everyone, there are some exceptional cases in which CGTMSE may extend some unique benefits such as -

• All loans from the North East States are eligible for a credit coverage of up to 80%. An annual fee of only 0.75% is also required to be paid.

• Women-owned enterprises will be eligible for credit coverage of up to 80%.

• Micro enterprises with loan credit amounts of up to Rs.5 lakh will be eligible for 80% credit coverage.

• A special rehabilitation scheme might be extended to businesses who are already under the CGTMSE scheme but have experienced problems that are not direct faults of the management.

Conclusion

CGTMSE is an excellent scheme introduced by the government to uplift MSEs in manufacturing and service sectors. You need to check all the CGTMSE scheme eligibility criteria before applying for the loan to increase your chances of approval.