The Centre has notified the establishment of the Credit Guarantee Scheme for Startups (CGSS) for providing credit guarantees to loans extended up to a specified limit by scheduled commercial banks, non-banking financial companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).

“The credit guarantee cover under the scheme would be transaction-based and umbrella-based. The exposure to individual cases would be capped at ₹10 crore per case or the actual outstanding credit amount, whichever is less,” per a statement issued by the Department for Promotion of Industry and Internal Trade (DPIIT) on Friday.

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The Startup India Action Plan launched by Prime Minister Narendra Modin in January 2016 envisaged a credit guarantee scheme to catalyse entrepreneurship through credit to innovators and encourage banks and other member institutions in the ecosystem for providing venture debt to startups.

“A dedicated credit guarantee for DPIIT-recognised start-ups will address the issue of unavailability of collateral free loan and enable flow of financial assistance to innovative start-ups through their journey to becoming full-fledged business entities,” the release said.

Guarantee cover

In respect of transaction-based guarantee cover, the guarantee cover is obtained by the member institutions (banks, NBFCs etc) on single eligible borrower basis, per the DPIIT notification. Transaction-based guarantees will promote lending by banks/ NBFCs to eligible start-ups.

“The extent of transaction-based cover will be 80 per cent of the amount in default if the original loan sanction amount is up to ₹3 crore, 75 per cent of the amount in default if the original loan sanction amount is above ₹3 crore, and up to ₹5 crore, and 65 per cent of the amount in default if the original loan sanction amount is above ₹5 crore (up to ₹10 crore per borrower),” it added.


- Maximum guarantee cover per borrower shall not exceed Rs.10 crore.

- Credit facility being covered should not have been covered under any other guarantee scheme.

- For loan sanction up to Rs 3 crore, transaction based cover to be 80% of default amount

- For loan sanction above Rs 3 crore and up to Rs 5 crore, cover to be 75%

- For higher sanctioned loan amounts up to Rs 10 crore, cover to be 65 %

- Under umbrella-based guarantee, cover to be provided for actual losses, up to 5% of pooled investment