CGTMSE stands for the Credit Guarantee Fund Trust for Micro and Small Enterprises. As you know, the first generation entrepreneurs may find it difficult to fund their business ideas with enough capital. This business idea may be a start-up or small or medium enterprises.
The reason may be the lack of property or resources available with the entrepreneurs to pledge for the guarantee of the loan amount at the initial stage.
The government of India and Small Industrial Bank of India(SIDBI ) formed the Credit Guarantee Fund Trust for Micro and Small Enterprises. So the collaterals or third party guarantee will not be a hindrance in front of the entrepreneurs with a viable project.
The main objective of this set up is the strengthening of the loan availability and supply of the loan to the MSME sector.
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Main Objectives of CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
The main objective of CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) is to provide credit or finance to the small and medium business projects without any collateral and third party guarantee.
When an entrepreneur approaches a bank for getting a loan for the project, usually the bank asks for acceptable collateral security or third party guarantee to secure the interest of the bank.
CGTME scheme helps these entrepreneurs, (if they don’t have a collateral or third-party guarantee to offer ) to realize their dream by providing the adequate guarantee.
So the businessman gets the fund based and non-fund based credit facility from the banks and financial institutions based on the primary security of the assets financed.
The significant consideration of availing the credit facility to a micro small and medium business is depending on the commercial viability of the project
Who all are eligible for CGTMSE Scheme
If you are planning to start a new business or you have an existing business, in manufacturing or service sector, you can apply for this scheme. But your business is in the area of Educational institution, Agriculture, Self Help Groups (SHGs), Training Institution etc., then you will not be able to apply for this scheme as these activities considered as an exception to CGTMSE scheme.
You need to remember that if you start the business as a Self Help Group (SHG), it will not be eligible for the CGTMSE ( Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme.
Under this scheme, you can get a loan for your micro or small enterprises with a maximum credit facility of 200 lakh without any third-party guarantee or collateral security.
Credit Facility Provided by CGTMSE
CGTMSE provides Fund and non-fund based loan to MSMEs.
Fund based loan includes the term loan or working capital finance granted to small or medium enterprises.
Non-fund based credit facility means the Bank Guarantee provided by the financial institution or facility of letter of credit etc.
The maximum amount of guarantee that the trust provides to a borrower is INR 200 lakh. Out of this amount, the maximum credit risk that the trust can be bone is 75% of the credit facility.
We can not apply for credit guarantee for a credit facility which already became a Non-Performing Asset (NPA).
The extent of Guarantee Cover
Guarantee Cover means the highest protection available per eligible borrower of the amount in default in respect of the loan facility extended by the lending organisation. The guarantee available various categories are given below.
1. Micro Enterprises
- If the Credit Facility is up to INR 5 lakh, 85% of the amount in default will cover under the guarantee scheme. It means a maximum of 4.25 lakh will cover under the guarantee scheme.
- If the credit facility granted above INR 5 lakh and up to 50 lakh, guarantee cover will be 75% of the credit facility with a maximum of INR 37.50 lakh.
- In case the Credit Facility is above INR 50 lakh, and up to INR 200 lakh, 75% of the amount will cover under the guarantee scheme. In this case, the maximum amount of guarantee will be INR 50 lakh.
2. Women Entrepreneurs / Units located in North East Regions
- If the credit facility is up to INR 50 lakh, 80% of the credit availed will cover under CGTMSE. The maximum coverage will be INR 40 lakh.
- In case the credit facility of women enterprises or business units situated in North East Regions is above INR 50 lakh, and up to INR 200 lakh, 75% of the amount in default will cover under the guarantee scheme. The maximum amount of guarantee will be INR 150 lakh.
3. MSE Retail Trade
- Credit facility for MSE Retail Trade is a maximum of INR 100 lakh. Under the CGTMSE scheme, you can get a 50% of the guarantee cover with a maximum of INR 50 lakh.
4. All Other Eligible Categories of Borrowers
- CGTMSE will provide 75% of the amount of the credit as a guarantee. The maximum guarantee will be INR 150 lakh.
Hybrid Security – A New Product Introduced by CGTMSE
Hybrid Security means the financial institution can collect collateral security for the pat of the loan granted. The other part of the credit facility, which stands as unsecured will consider for guarantee schemes. Here also the total amount of loan should not exceed the INR 200 Lakh.
Ineligible Credit Facilities under the CGTMSE scheme
- If the risk of your loan is covering by any scheme of Deposit Insurance and Credit Guarantee Corporation (DICGC) or Reserve Bank of India (RBI), Government or any other General Insurance companies, your credit facility is ineligible for the cover under CGTMSE.
- Your credit facility up to 10 lakh, for your micro-enterprises, will not be eligible to cover under the CGTMSE scheme if this loan facility has been covered under the MUDRA Guarantee scheme through NCGTC Ltd.
- If your credit facility is not conforming with the provision of the law, directives of the Central Government or Reservice bank of India, it will not be eligible to get covered under the CGTMSE scheme.
- A loan facility granted by the bank or financial institution against collateral security or third party guarantee, then this facility will not be covered under the scheme. After the introduction of the Hybrid Security by the Trust, financial institutions can obtain collateral for one portion of the credit facility and the unsecured portion of maximum up to INR 200 lakh can be covered under the CGTMSE scheme.
- If you are a defaulter for any other credit facility granted, then your new credit facility will be ineligible to cover tuner the scheme.
What is Annual Guarantee Fee (AGF)?
Annual Guarantee Fee (AGF) is the fee charged by CGTMSE Trust on the lending institutions against the guaranteed amount of the borrowers. AGF will be charged on the guaranteed amount for the first year. For the remaining period of coverage, it will be charged on the outstanding amount.
The AGF, for term loans, will be calculated based on the outstanding balance of the individual accounts as on 31 December and for working capital, it will be calculated based on the maximum limit availed by the borrower during the previous calendar year.
Whether the Borrower needs to bear the AGF (Annual Guarantee Fee)
AGF used to pay by the Money Lending Institution to CGTMSE. So the transfer of the burden of the AGF will be at the discretion for the lending institution.
Structure of AGF
How to Apply for CGTMSE Loan
Now, the online portals are available to apply for an MSME loan.
To obtain the Credit Guaranteed loan for an MSME, you need to have a stunning business idea to start the business. Then decide the form of an entity like a sole proprietorship, partnership, One person company, Pvt lilies or Public limited and register it with the concerned authorities. Prepare a project report, approach and convince your banker.
If it is a commercially viable project, the bank will ready to finance