Govt notifies credit guarantee scheme for startups to provide collateral-free loans

The government has notified the credit guarantee scheme for startups to provide them collateral-free loans up to a specified limit.

In a notification, the Department for Promotion of Industry and Internal Trade (DPIIT) said that loan/debt facilities sanctioned to an eligible borrower on or after October 6, would be eligible for coverage under the scheme.

"The Central Government has approved the 'Credit Guarantee Scheme for Startups (CGSS) for the purpose of providing credit guarantees to loans extended by member institutions (MIs) to finance eligible borrowers being startups," it said.

Source: PIB

This scheme would help provide the much needed collateral-free debt funding to startups, it added.

MIs include financial intermediaries (banks, financial institutions, NBFCs, AIFs) engaged in lending/investing and conforming to the eligibility criteria approved under the Scheme.

Recognised startups that have reached the stage of stable revenue stream, as assessed from audited monthly statements over a 12 month period, amenable to debt financing; and startups that are not in default to any lending/investing institution and not classified as non-performing asset as per RBI guidelines, are eligible to avail benefits of this scheme.

"Maximum guarantee cover per borrower shall not exceed Rs 10 crore. The credit facility being covered here should not have been covered under any other guarantee scheme," the Department said.

For the purpose of this scheme, a trust or fund would be set up by the government of India with the purpose of guaranteeing payment against default in loans or debt extended to eligible borrowers, managed by the Board of National Credit Guarantee Trustee Company Ltd as the Trustee of the Fund.

It also said that lending institutions will have to evaluate credit applications by using prudent banking judgement and shall use their business discretion/due diligence in selecting commercially viable proposals and conduct the accounts of the borrowers with normal banking prudence.

These institutions should also have to closely monitor the borrower account.

Further there will be a Management Committee constituted by the DPIIT to oversee the affairs of the trust.

The committee will be responsible for reviewing, supervising and monitoring the' functioning of the trust and shall provide necessary guidance to the trust on broad policy matters related to the scheme.