Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE)

Introduction of Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE): A Brief Insight

Small manufacturers, repair shop owners and traders often have the skills and a good business plan but lack property to offer as security for a bank loan. The Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE) helps solve this problem by providing guarantee support to lenders, allowing them to offer eligible business loans without collateral or a third-party guarantee.

The Government of India and the Small Industries Development Bank of India (SIDBI) established a trust to operate the scheme, which came into force in August 2000. The Trust works under the Ministry of Micro, Small and Medium Enterprises.

The Credit Guarantee Fund Trust for Micro and Small Enterprises implements the scheme. It provides guarantee cover to eligible lenders, including banks, regional rural banks, small finance banks, co-operative banks and microfinance institutions that have signed an agreement with the Trust.

The scheme aims to encourage lenders to assess a business on the strength of its project rather than its property. This allows new and existing micro and small enterprises to access credit even when they cannot provide collateral.

From 1 April 2025, the guarantee covers credit facilities of up to ₹10 crore per borrower for banks, double the earlier ceiling of ₹5 crore. Eligible facilities include term loans, working capital limits and bank guarantees.

The Trust covers up to 90% of the defaulted loan for women entrepreneurs, 85% for Scheduled Caste and Scheduled Tribe entrepreneurs and certain other groups, 80% for eligible units in the North Eastern Region, Jammu and Kashmir and Ladakh, and 75% for other borrowers. Lenders pay an annual guarantee fee ranging from 0.37% to 1.20%, with a 10% discount available to eligible special categories.

New and existing micro and small enterprises can benefit from the scheme, including businesses involved in manufacturing, services, trading and training activities. Under the hybrid security model, a lender can also accept collateral for part of a loan and obtain guarantee cover for the remaining unsecured amount.

You do not need to apply directly to the Trust. First, register your business on the Udyam portal and then apply for a business loan through a bank or another eligible member lender. The lender applies to the Trust for guarantee cover. Reports also state that banks must not insist on collateral for loans of up to ₹20 lakh.

For assistance, you can contact your lender or visit the Trust’s office in Mumbai. You can find its address and contact numbers in the contact section below.

Entrepreneurs who need a subsidy along with a business loan can explore the Prime Minister’s Employment Generation Programme. Those planning to improve their manufacturing quality and adopt lean practices can read about the MSME Champions Scheme.

Founders of recognised startups can explore the Credit Guarantee Scheme for Startups. Women, Scheduled Caste and Scheduled Tribe entrepreneurs seeking loans of up to ₹1 crore can also check the Stand Up India Scheme.

Entrepreneurs who need a smaller loan to start or expand a business can explore the Pradhan Mantri Mudra Yojana (PMMY).

Micro and small entrepreneurs, traders, women and first-time business owners looking for more central government support for loans, credit and enterprise development can explore the programmes listed on our Welfare Schemes List of Central Government page.

Benefits Provided to Eligible Beneficiaries

Many micro and small business owners have the skills and a viable business plan but lack property to offer as security for a bank loan. The Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE) helps address this problem by providing guarantee cover to lenders for eligible loans. This allows businesses to access credit without collateral or a third-party guarantee. The following benefits and terms are based on the Trust’s scheme document updated up to January 2025 and its subsequent circulars.

What It Does for You as a Borrower

• Access business loans without collateral or a third-party guarantee, subject to lender approval
• Guarantee cover of up to ₹10 crore per borrower for banks, effective for guarantees approved from 1 April 2025
• Coverage for term loans, working capital facilities, bank guarantees and letters of credit
• Option to use the hybrid security model, where the lender accepts collateral for part of the loan and obtains guarantee cover for the unsecured portion
• Coverage for retail and wholesale traders, schools, colleges and training institutes, along with manufacturing and service enterprises
• As per the reported RBI direction dated 9 February 2026, banks should not insist on collateral for loans up to ₹20 lakh to micro and small enterprises.

What It Does for the Lender

• Receives guarantee support against eligible loan defaults
• Can apply for guarantee cover during the loan period, subject to scheme conditions
• Gets cover for the entire agreed term of a term loan
• Can obtain cover for a five-year block for working capital facilities and renew it without a maximum renewal period
• Retains its recovery rights against the borrower and the assets

Cover at a Glance

These coverage rates apply to guarantees issued from 10 December 2024. Earlier guarantees retain the coverage applicable when they were issued.

Annual Guarantee Fee, Paid by the Lender

• The first-year fee is charged on the guaranteed amount, while subsequent fees are based on the outstanding amount. The applicable tax is also included.
• Eligible women, SC/ST entrepreneurs, persons with disabilities, Agniveers, specified geographical units and ZED-certified units receive a 10% fee discount for each qualifying category.
• Eligible units falling under all three discount categories can receive a combined discount of up to 30%.
• The lender’s portfolio performance also affects the fee. Eligible lenders may receive a 10% discount, while new or higher-risk lenders may pay an additional risk premium.

A Simple Example of the Fee

Consider a guarantee of ₹10 lakh for a woman entrepreneur. If the lender’s risk premium is 15%, the standard fee of 0.37% falls to approximately 0.33% after the 10% discount. Applying the 15% risk premium brings the final rate to about 0.38%. The lender therefore pays approximately ₹3,800 annually, before tax.

Old and New Terms at a Glance

How a Claim Helps the Lender

• The Trust pays 75% of the guaranteed amount within 30 days of an eligible claim and the remaining 25% after recovery is completed or three years after the court order, whichever is earlier.
• The lender can submit a claim after a lock-in period of 18 months, or 9 months for eligible guarantees up to ₹10 lakh on loans with a tenure of up to 36 months. The claim must be filed within three years of the account becoming an NPA.
• For accounts involving up to ₹10 lakh, the lender may not need to initiate legal proceedings if its senior officers’ committee approves the decision.
• Where the waiver of legal action applies, the lender may opt for a single claim payment with 15 percentage points lower guarantee coverage.

How the Scheme Helps You

• Access business credit without pledging your home, land or other property.
• Get an opportunity to establish a formal credit history with a lender.
• Arrange funds for machinery, equipment, stock and working capital.
• Expand business operations and create employment opportunities.

Good to Know

• The guarantee protects the lender, not the borrower. The lender still decides whether to approve your loan.
• You must repay the full loan even if the Trust settles a guarantee claim with the lender.
• The lender may recover the guarantee fee from you at its discretion. Confirm this before accepting the loan.
• Loan ceilings for small finance banks, regional rural banks, co-operative banks and microfinance institutions may differ from those applicable to other banks.
• Check the latest guarantee coverage and fee structure with your lender before applying.
• Never pay an agent to arrange a loan or guarantee cover.

Eligibility Conditions Required to be Fulfilled

The Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE) covers eligible micro and small businesses and the loans provided to them by approved lenders. Check the following conditions before applying to know whether your business and loan qualify for guarantee cover. The details below follow the Trust’s scheme document updated up to January 2025 and subsequent circulars on loan limits.

Who Can Borrow

• A new or existing micro or small enterprise registered under the Micro, Small and Medium Enterprises Act, 2006
• Manufacturing and service enterprises
• Retail and wholesale trading businesses
• Schools, colleges and training institutes
• Medium enterprises are not eligible

The Loans That Get the Guarantee

• Term loans, working capital facilities or composite loans
• Non-fund-based facilities, such as bank guarantees and letters of credit
• Loans without collateral or third-party guarantees, except under the hybrid security model
• Guarantee cover of up to ₹10 crore per borrower for banks, applicable to guarantees approved from 1 April 2025
• As per the January 2025 scheme document, the earlier limits for certain other lenders were ₹200 lakh for small finance banks, regional rural banks and co-operative banks, and ₹50 lakh for microfinance institutions. Check the current limit with your lender.
• The limit is based on the outstanding loan amount, allowing further credit as you repay, subject to the applicable ceiling.

How Long the Cover Lasts

• Term loans: For the entire agreed loan period
• Working capital facilities alone: Five-year block, renewable by the lender without a maximum renewal period
• Guarantee applications during the loan period, subject to restructuring and special mention account conditions

The Hybrid Security Model

• Collateral for part of the loan and guarantee cover for the remaining unsecured amount
• A notional second charge on the collateral in favour of the Trust
• As per the reported RBI direction, banks should not insist on collateral for loans up to ₹20 lakh to micro and small enterprises.

Who Is Not Eligible

• Medium enterprises and businesses outside the micro and small enterprise category
• Loans secured by collateral or third-party guarantees, except the unsecured portion under the hybrid model
• Loans already covered under another eligible guarantee or insurance scheme, to the extent of the existing cover
• Borrowers who have not repaid dues to the Trust after it settled a previous guarantee claim
• Loans that violate applicable laws or Government or RBI rules
• Loans used to adjust old bad debts without the Trust’s consent
• Accounts that are not standard and regular when the lender applies, or businesses that have stopped operating

Which Lenders Can Use the Guarantee

• Scheduled commercial banks, including public, private and foreign banks, and selected financial institutions
• Regional rural banks, small finance banks, urban co-operative banks, state and district central co-operative banks, and approved microfinance institutions
• Lenders that have signed an agreement with the Trust
• Eligible smaller lenders that meet the Trust’s entry requirements, including capital adequacy, bad loan and profitability criteria
• Microfinance institutions with at least 36 months of operational experience
• For loans above ₹50 lakh, lenders must independently rate the proposal as investment grade.
• Lenders must follow normal lending practices, monitor accounts and continue recovery efforts even after receiving a guarantee claim.
• Interest rates must comply with RBI rules. The scheme does not prescribe a separate interest rate.

Check Before You Apply

• Confirm that your business qualifies as a micro or small enterprise and has Udyam registration.
• Check whether your loan type and amount fall within the lender’s applicable ceiling.
• Keep category or location-related proof ready if you qualify for higher coverage or a lower guarantee fee.
• Confirm that your lender has an agreement with the Trust and can provide guarantee cover for your loan.
• Never pay an agent to arrange a loan or guarantee cover.

Documents Required to be Attached

Applicants must keep the following documents ready while applying for a loan under the Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE). The lender may ask for additional documents depending on the business and loan amount.

Your Identity and Business Papers

• Aadhaar Card and PAN Card of every promoter
• Address proof of the promoters
• Udyam Registration Certificate
• Business constitution documents, such as proprietorship proof, partnership deed or certificate of incorporation
• GST registration certificate, trade licence or other applicable business licence
• Recent photographs of promoters
• Business address proof, such as rent agreement or property documents

Extra Papers for Higher Cover or Lower Fee

• Women entrepreneurs: Partnership deed or shareholding proof
• SC/ST entrepreneurs: Caste certificate
• Persons with disabilities: Disability certificate
• Agniveers: Discharge certificate or Agniveer status proof
• ZED-certified units: Zero Defect Zero Effect (ZED) certificate
• Units in the North Eastern Region, Jammu and Kashmir, Ladakh, Aspirational Districts or credit-deficient districts: Business address proof

Your Project and Money Papers

• Project report or business plan
• Machinery and equipment quotations
• Last 12 months’ bank statements, if applicable
• Previous years’ balance sheets and income tax returns, if applicable
• Sales records and purchase orders for loans above ₹50 lakh

Papers for a Part Secured Loan

• Property title documents
• Property valuation report
• Statement showing the value of collateral

What the Lender Files for the Guarantee

• Agreement with the Trust
• Online guarantee application through the Trust’s portal
• Guarantee fee payment details
• Annual outstanding loan details

Papers the Lender Files for a Claim

• Date of the loan account becoming an NPA
• Declaration and undertaking
• Recovery proceedings documents
• Statutory auditor’s certificate

How Beneficiaries Can Apply to Avail the Benefit of this Scheme

You do not need to apply directly to the Credit Guarantee Fund Trust for Micro and Small Enterprises to get the benefit of the Credit Guarantee Scheme for Micro and Small Enterprises (CGTMSE). Instead, you approach a bank or an eligible lender for a business loan. If your loan meets the scheme conditions, the lender applies to the Trust for a guarantee. Think of it this way: you borrow money from a shopkeeper, and someone else promises the shopkeeper that they will cover a part of the loss if you cannot repay. Under CGTMSE, the Government and SIDBI provide this guarantee to the lender, not directly to you. Your job is to present a good business plan and complete the loan application process. You can approach a lender through different methods, which we have explained below. If you need a smaller loan to start or expand a business, you can also read our guide to the Pradhan Mantri Mudra Yojana.

Before You Start

Step 1: Check whether your business comes under the micro or small enterprise category. It may be a small factory, workshop, service unit, shop or training institute. Medium and large enterprises cannot get this benefit.

Step 2: Register your business through the Official Udyam Registration Portal and keep your Udyam certificate ready. This certificate helps the lender verify your enterprise category.

Step 3: Decide how much money you need and why you need it. You can ask for a term loan to purchase machinery, a working capital limit to meet daily business expenses, or an eligible bank guarantee. The maximum loan limit for banks can go up to ₹10 crore.

Step 4: Prepare a simple but clear project report. Explain what your business will make or sell, which machines or equipment you need, how much you expect to earn and how many people you plan to employ.

Step 5: Keep your documents ready, including your Aadhaar card, PAN card, Udyam certificate, business registration papers, bank statements and machinery quotations. You can check the documents section of this guide for the complete list.

Method 1: Go to a Bank Branch

Step 1: Find a bank branch near you. You can approach a public sector bank, private sector bank or eligible foreign bank for a business loan.

Step 2: Meet the bank manager or loan officer and explain that you need a business loan for your micro or small enterprise.

Step 3: Collect the loan application form and fill in your personal and business details correctly.

Step 4: Submit your documents along with the project report. Ask for an acknowledgement or receipt so you have proof of submission.

Step 5: Ask the bank clearly: “Can you cover my business loan under CGTMSE so that I do not have to provide collateral?”

Step 6: Answer the bank’s questions and provide any additional information it requests. The bank will check your business plan, documents and repayment capacity before deciding whether to approve the loan.

Method 2: Go to a Smaller Lender

Step 1: You can also approach a regional rural bank, small finance bank, co-operative bank or microfinance institution operating in your area.

Step 2: Ask the lender whether it has an agreement with the Trust. Only eligible lending institutions that have completed the required formalities can provide loans under CGTMSE.

Step 3: Collect the lender’s application form, fill it in and submit the required documents. Remember to take an acknowledgement.

Step 4: Ask about the maximum loan amount it can cover under the scheme. Smaller lenders may have a lower guarantee ceiling than other banks.

Method 3: Apply Through an Online Loan Portal

Step 1: Visit the Udyamimitra Portal or the JanSamarth Portal. These portals provide online facilities to connect eligible applicants with lenders for business loans and government-supported credit schemes.

Step 2: Register using your mobile number and log in to your account.

Step 3: Select the relevant business loan option and enter your personal details, business information and required loan amount.

Step 4: Upload the requested documents and submit your application.

Step 5: Save your application or reference number. The portal or selected lender may contact you about the next steps.

Step 6: If the lender asks you to visit its branch, carry your original documents and explain your business plan. The online application does not remove the lender’s requirement to verify your details.

Method 4: Ask for a Loan of Up to ₹20 Lakh

Step 1: Visit a bank and explain that you need a business loan of up to ₹20 lakh for your micro or small enterprise.

Step 2: Ask the bank about the RBI direction regarding collateral-free loans of up to ₹20 lakh for eligible micro and small enterprises.

Step 3: Submit your documents and ask whether the bank can also cover your loan under CGTMSE. This provides the lender with additional guarantee support under the scheme.

Method 5: Ask for a Bigger Loan With Part Security

Step 1: Choose this option if you need a large business loan and have some property to offer as security, but its value is not enough to cover the entire loan.

Step 2: Ask the lender whether it can provide the loan under the hybrid security model. Under this arrangement, the lender takes collateral for one part of the loan and obtains CGTMSE cover for the remaining unsecured portion.

Step 3: Submit your property’s title documents and other required papers so that the lender can check and assess its value.

Step 4: For a loan above ₹50 lakh, the lender may also assess the credit rating of your business proposal. Keep your sales records, purchase orders and other financial details ready for this assessment.

If You Belong to a Special Group

Step 1: Check whether you belong to any eligible special category, such as women entrepreneurs, SC/ST entrepreneurs, persons with disabilities or enterprises promoted by Agniveers. Certain units located in the North Eastern Region, Jammu and Kashmir, Ladakh, aspirational districts and credit-deficient districts, along with ZED-certified units, may also receive additional benefits.

Step 2: Keep the relevant proof ready, such as a caste certificate, disability certificate, Agniveer discharge certificate, ZED certificate or business address proof.

Step 3: Inform the lender about your category and submit the supporting documents. Eligible categories may receive higher guarantee coverage or a discount on the annual guarantee fee.

Step 4: If you want to obtain a ZED certificate, read our guide to the MSME Champions Scheme.

What Happens at the Lender

Step 1: The lender checks your business details, submitted documents, project report and credit history.

Step 2: If your business proposal meets its lending requirements, the lender decides whether to sanction the loan.

Step 3: The lender may sanction the loan without collateral if it agrees to cover the eligible credit facility under CGTMSE.

Step 4: Read all loan terms carefully before signing. Keep a copy of the loan agreement and every other document you submit or sign.

What the Lender Does With the Trust

You do not need to complete these steps yourself. The lender handles the guarantee process with the Trust, but knowing how it works will help you ask the right questions.

Step 1: The lender must have a valid agreement with the Trust before it can obtain guarantee cover under CGTMSE.

Step 2: The lender submits the guarantee application online through the Trust’s portal and enters the details of your loan.

Step 3: The lender pays the applicable guarantee fee within 30 days of the first loan disbursement or the demand note, whichever is later. The guarantee cover then becomes effective, subject to the scheme conditions.

Step 4: The lender updates the outstanding loan amount on the Trust’s portal every year by 15 January.

Step 5: The Trust raises the annual guarantee fee in the second week of February, which the lender must pay by 30 March.

After You Get the Loan

Step 1: Use the loan amount for the business purpose mentioned in your application and project report.

Step 2: Pay your instalments on time. Remember, CGTMSE provides a guarantee to the lender; it does not cancel your repayment responsibility.

Step 3: Keep your purchase bills, bank statements, sales records and other business documents properly maintained.

Step 4: If your business faces financial difficulties, contact the lender early. Do not wait until your loan account becomes irregular or turns into a non-performing asset.

If the Lender Says No

Step 1: Ask the lender to explain the reason for rejecting your application. It may refuse the loan if your business plan is not viable, your repayment capacity is weak or your documents are incomplete.

Step 2: Correct the issues identified by the lender. For example, submit missing documents, improve your project report or provide the required financial details before applying again.

Step 3: You can also approach another eligible bank or lender. Compare their loan terms and confirm whether they offer CGTMSE coverage.

Step 4: If you are starting a new business and need a subsidy along with a loan, read our guide to the Prime Minister’s Employment Generation Programme (PMEGP).

If You Need Help

Step 1: Contact your bank manager or the loan officer handling your application. They can explain the loan process and whether your credit facility is eligible for CGTMSE coverage.

Step 2: Visit the Official CGTMSE website to check scheme circulars, the list of eligible lending institutions and the Trust’s contact details.

Important: You cannot apply directly to the Trust for a CGTMSE guarantee, and no agent can arrange the guarantee on your behalf. The lender decides whether to approve your loan and deals with the Trust for guarantee coverage. Do not pay anyone who promises to arrange a loan or guarantee. Also, ask your lender in writing whether it will charge you the guarantee fee.

CGTMSE vs Stand Up India, Micro Units and Startups: Which Credit Guarantee Scheme Should You Choose?

The Government of India operates several credit guarantee schemes for different types of businesses and borrowers. Although their names may sound similar, each scheme serves a different purpose and covers a specific category of loans. These schemes do not provide loans directly. Instead, they protect eligible lenders against a part of the loan default risk. The table below compares their key features and implementing agencies.

Which Credit Guarantee Scheme Should You Consider?

• If you operate a micro or small enterprise and need a business loan of up to ₹10 crore, check your eligibility for CGTMSE.
• If you are a woman or a Scheduled Caste or Scheduled Tribe entrepreneur planning to start a new business, explore the Stand Up India Scheme.
• If you need a loan of up to ₹20 lakh to establish or expand a micro business, explore the Pradhan Mantri Mudra Yojana (PMMY), whose eligible loans receive guarantee support through CGFMU.
• If you operate a startup recognised by DPIIT, check the Credit Guarantee Scheme for Startups (CGSS).
• A lender cannot claim guarantee coverage twice for the same credit facility. The CGTMSE scheme document excludes credit facilities already covered by the National Credit Guarantee Trustee Company Limited. Your lender will determine the applicable guarantee scheme for the loan.

Important Links Available of the Scheme

• CGTMSE Scheme Document (CGS-I): Guarantee Coverage, Fees and Claim Rules (PDF)
• CGTMSE Circular: Revised ₹10 Crore Guarantee Ceiling and Annual Fee Structure (PDF)
• CGTMSE Annual Report 2023 (PDF)
• CGTMSE Official Website: Circulars and Member Lending Institutions
• Udyam Registration Portal: Register Your Micro or Small Enterprise
• Udyamimitra Portal: Online Business Loan Applications
• JanSamarth Portal: Government-Linked Credit Schemes

Contact Details in Case of Help Needed

• Office: Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), 1st Floor, SIDBI Swavalamban Bhavan, Avenue 3, Lane 2, G-Block, Bandra Kurla Complex, Bandra East, Mumbai, Maharashtra – 400051
• Toll Free Phone: 1800 222 659
• Phone: 022-67221553
• Your Lender: The manager of the bank branch, or the staff of the regional rural bank, small finance bank, co-operative bank or microfinance institution where you apply, who decides on your loan and who asks the Trust for the guarantee
• Ministry of MSME: The Ministry of Micro, Small and Medium Enterprises, Kartavya Bhawan, Kartavya Path, New Delhi – 110001

Frequently Asked Questions (FAQs)

Tabassum

Tabassum is a government schemes researcher and writer with 5 years of experience tracking Central and State welfare scheme programmes across India. She has covered 500+ schemes spanning agriculture, women welfare, education, and housing, helping lakhs of beneficiaries understand their entitlements in simple language.