Introduction: CGTMSE scheme

Access to finance remains one of the biggest challenges for micro and small enterprises in India. Many viable businesses fail to secure bank loans simply because they cannot provide collateral. To solve this issue, the Government of India introduced the CGTMSE scheme, a flagship credit guarantee initiative designed to encourage banks to lend without demanding security.

The Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE) provides a government-backed guarantee to banks and NBFCs, allowing MSMEs to obtain collateral-free loans with reduced lender risk. As per the updated April 01, 2025, the scheme now supports loans up to ₹10 crore, making it highly relevant for growing enterprises.

At Finraja Consultancy Private Limited, we assist MSMEs, startups, women entrepreneurs, and special category borrowers in structuring, positioning, and securing CGTMSE-backed loans through our end-to-end consultancy support.

What Is the CGTMSE Scheme?

The CGTMSE scheme is jointly operated by the Ministry of MSME, the Government of India, and SIDBI. Instead of offering direct loans, the scheme provides a credit guarantee cover to lending institutions.

This guarantee:

• Reduces the bank’s financial risk
• Enables collateral-free lending
• Improves loan approval chances for MSMEs

The borrower benefits indirectly, while banks receive confidence to sanction loans without property or third-party guarantees.

CGTMSE Collateral-Free Loan: Key Advantage for MSMEs

One of the most searched benefits under this scheme is the CGTMSE collateral-free loan facility.

• No land, building, or fixed asset mortgage required
• No third-party guarantee needed
• Suitable for new and growing MSMEs

This feature is particularly valuable for:

• First-generation entrepreneurs
• Startups with limited asset base
• Service-sector MSMEs

Finraja ensures your project and financials are presented bank-ready, increasing the probability of approval under the CGTMSE framework.

CGTMSE Loan Guarantee Scheme

Under the CGTMSE loan guarantee scheme, the trust provides a guarantee to the lender in case the borrower defaults.

Guarantee Coverage Concept

• The guarantee is not paid to the borrower
• It is paid to the lending institution
• This reduces credit hesitation from banks

This indirect benefit significantly improves sanction probability when the proposal is properly structured by an experienced consultant.

CGTMSE Guarantee Coverage Percentage

The CGTMSE guarantee coverage percentage varies based on borrower category and loan size.

Coverage Highlights

• 75% – General MSME loans
• 80% – Micro enterprises
• 85% – Loans in aspirational districts
• 90% – Women, SC/ST, PwD entrepreneurs

Higher coverage means lower lender risk, which strengthens the loan proposal when positioned correctly by Finraja’s financial experts.

CGTMSE Annual Guarantee Fee (AGF)

The CGTMSE annual guarantee fee is charged to the lending institution and typically factored into the loan cost.

AGF Range

• Starts from 0.37%
• Goes up to 2.04%
• Depends on loan amount and borrower category

A professionally structured loan proposal ensures:

• Optimal fee category selection
• Avoidance of unnecessary risk loading
• Better loan terms

CGTMSE Loan Limit ₹10 Crore

As per the latest revision, the CGTMSE loan limit of ₹10 crore significantly expands funding opportunities.

• Medium-scale expansion projects qualify
• Manufacturing, service, and trading units covered
• Term loan and working capital both eligible

This upgrade makes CGTMSE highly relevant for growth-oriented MSMEs, especially when financial projections are consultant-validated.

CGTMSE Scheme Eligibility Criteria

Understanding CGTMSE scheme eligibility is essential before approaching lenders.

Eligible borrowers include:

• Micro and Small Enterprises
• New and existing MSMEs
• Manufacturing & service units
• Retail trade (as per lender norms)

Ineligible entities include:

• Agricultural activities
• Self-help groups
• Educational institutions

Finraja evaluates eligibility before banker engagement, saving time and rejection risk.

CGTMSE for Women Entrepreneurs

The CGTMSE for women entrepreneurs category offers the highest guaranteed coverage under the scheme.

Key Benefits

• Up to 90% guarantee cover
• Improved approval probability
• Encourages women-led enterprises

Women-owned MSMEs supported by professional consultants enjoy faster processing and improved sanction confidence.

CGTMSE Hybrid Collateral Model

The CGTMSE hybrid collateral model allows partial security combined with guaranteed cover.

Why This Matters

• Reduces guarantee fee impact
• Enhances sanction comfort for banks
• Ideal for larger loan sizes

Finraja strategically recommends this model where it improves financial viability.

CGTMSE Working Capital Guarantee Support

The CGTMSE working capital guarantee extends beyond term loans.

Coverage Highlights

• Working capital loans eligible
• Renewable up to 5 years
• Ideal for cash-flow-intensive businesses

This is especially useful for trading, service, and seasonal MSMEs.

CGTMSE Claim Settlement Process

The CGTMSE claim settlement process protects lenders, not borrowers.

Key Structure

• 75% claim paid on NPA classification
• Remaining 25% after recovery efforts

This assurance is what enables collateral-free lending in the first place.

Financial Assessment Under CGTMSE Scheme

Financial Summary Table

A well-structured CGTMSE proposal:

• Improves sanction confidence by 30–40%
• Reduces objection cycles
• Enhances lender comfort

Conclusion

The CGTMSE scheme remains one of India’s most powerful tools for enabling collateral-free MSME finance. However, success under this scheme depends not only on eligibility but also on financial positioning, compliance alignment, and lender psychology.

For MSMEs aiming to secure CGTMSE-backed loans up to ₹10 crore, professional consultancy support is not optional—it is strategic.

Finraja Consultancy specializes in CGTMSE-aligned loan advisory and subsidy consulting.
Connect with our experts to evaluate your eligibility and financing potential.

Call us now: +91 9373114747 or visit finraja.com/contact for quick assistance.