Startups get boost as govt raises credit guarantee cover to ₹20 crore

Revised CGSS raises guarantee cover to ₹20 crore and increases protection for lenders to encourage credit flow and reduce risks for innovation-led startups

In a bid to improve access to capital for startups, the government on Friday expanded the Credit Guarantee Scheme for Startups (CGSS). The revised scheme doubles the maximum guarantee cover per borrower to ₹20 crore from ₹10 crore.

 

The enhanced guarantee cover will boost credit availability for startups and drive innovation, the Department for Promotion of Industry and Internal Trade (DPIIT) said in a notification.

 

In addition to expanding the overall cover, the extent of guarantee has also been increased. For loans up to ₹10 crore, the guarantee will now cover 85 per cent of the amount in default, while for loans above ₹10 crore, the coverage will be 75 per cent.

 

According to the notification, these changes aim to address the financing needs of innovation-driven startups. “As a result of the increased guarantee support and coverage, the number of financial institutions coming forward to provide credit support to startups shall increase, thereby increasing overall fund flow for startups,” it stated. The expanded scheme is also expected to reduce the perceived risk of lending to startups.

 

“Venture debt has become an important element of a startup’s funding journey. Collateral-free debt is almost like a dream for startups and helps them meet early-stage funding needs without diluting very quickly. CGSS could benefit many startups if the eligibility and disbursement process is objective,” said Amarjeet Makhija, partner and leader – Startups, PwC India.

 

The government launched the Startup India initiative along with an action plan on 16 January 2016.

 

As part of the initiative, the CGSS was notified on 6 October 2022 to provide guarantees against credit instruments extended to startups by Scheduled Commercial Banks, All India Financial Institutions (AIFIs), Non-Banking Financial Companies (NBFCs), and Securities and Exchange Board of India (SEBI)-registered Alternative Investment Funds (AIFs).

 

Amit Sachdev, co-founder and chief operating officer, M1xchange, said: “It will also boost lender confidence by mitigating risks, encouraging financial institutions to actively support MSME financing through avenues such as supply chain financing, working capital loans, bill discounting, and digital trade platforms. These measures will not only enhance MSME competitiveness but also catalyse the ‘Make in India’ initiative, positioning India as a formidable player in the global manufacturing and supply chain landscape.”

 

As of 9 May, there are 173,413 DPIIT-recognised startups in the country.