Government expands credit guarantee scheme to boost capital access for Startups

New Delhi [India], May 9 : In a move aimed at further strengthening the startup ecosystem in India, the Government has expanded the Credit Guarantee Scheme for Startups (CGSS) to increase capital mobilization for budding enterprises, the Department for Promotion of Industry and Internal Trade (DPIIT) said in a statement on Friday.

The expansion of the scheme, which is in line with the announcement made in the Union Budget 2025-26, includes a significant enhancement of credit availability for startups.

The modifications are designed to encourage early-stage debt funding and promote innovation across various sectors of the economy.

The scheme is designed to facilitate collateral-free debt funding through instruments like working capital, term loans, and venture debt.

The Credit Guarantee Scheme for Startups (CGSS) was originally notified on October 6, 2022, as part of the broader vision of the Startup India initiative launched by the Prime Minister on January 16, 2016.

The initiative aimed to create a vibrant startup ecosystem in the country and included a comprehensive Action Plan for Startups.

Under the CGSS, guarantees are provided against credit instruments extended to startups by Scheduled Commercial Banks, All India Financial Institutions (AIFIs), Non-Banking Financial Companies (NBFCs), and SEBI-registered Alternative Investment Funds (AIFs).

With the recent modifications, the ceiling on the guarantee cover per borrower has been increased from Rs. 10 crore to Rs. 20 crore. The extent of guarantee cover has also been raised to 85 per cent of the amount in default for loans up to Rs. 10 crore and 75 per cent for loans exceeding Rs. 10 crore.

In a move to support innovation in priority sectors, the Annual Guarantee Fee (AGF) for startups operating in 27 Champion Sectors identified under the 'Make in India' initiative has been halvedfrom 2 per cent per annum to 1 per cent per annum.

These sectors have been identified to boost India's manufacturing and service capabilities.

However, the maximum guarantee cover per borrower under the scheme shall not exceed Rs. 10 crore. In the case of umbrella-based guarantee cover, the actual losses or up to a maximum of 5 per cent of pooled investmentwhichever is lowerwill be covered, subject to the same Rs. 10 crore cap per borrower.

The expansion of the CGSS is expected to make funding more accessible and attractive for startups, especially those in key sectors, and give a strong push to domestic innovation, manufacturing, and self-reliance.

According to a report titled 'India Invests' by Wealth 360 One, the startup funding in India has registered a decline of 17 per cent in FY 24 as compared to the previous year. Startups raised nearly USD 8 billion from investors in FY23-24, marking a 50 per cent decrease from FY 22-23.

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