CGTMSE Scheme for Collateral Free Loans: Full Form, Eligibility, Charges, & Coverage

For many Micro and Small Enterprises in India, access to formal credit becomes difficult the moment a lender asks for collateral. This is exactly the problem the CGTMSE Scheme was designed to solve. What is the CGTMSE full form, and what coverage does it offer? 

Let’s see!

What is the CGTMSE Scheme?

CGTMSE stands for Credit Guarantee Fund Trust for Micro and Small Enterprises. It is a government-backed credit guarantee mechanism that supports banks and NBFCs in extending collateral-free loans to eligible MSEs 

• It is a Trust created jointly by the Ministry of MSME and SIDBI with the objective of easing access to bank credit for eligible units that do not have property security or third-party guarantees. 
• The Trust does not give loans directly. 
• It provides risk cover only to Member Lending Institutions so they can sanction collateral-free credit.
• By providing a structured credit guarantee to lenders, the scheme allows banks and financial institutions to support Micro and Small Enterprises without insisting upon collateral or third-party guarantees.

Structure of the CGTMSE Credit Guarantee Scheme

Category	Details
Purpose of the Scheme	It provides collateral-free credit to Micro and Small Enterprises to address the longstanding challenge of inadequate and delayed access to formal finance.
Reason for the Scheme	Banks perceive high risk in lending to Micro and Small Enterprises and usually insist on collateral, which many enterprises, especially first-generation entrepreneurs, cannot provide.
Implementing Body	The Credit Guarantee Fund Trust for Micro and Small Enterprises, established jointly by the Ministry of Micro, Small and Medium Enterprises and the Small Industries Development Bank of India.
Launch Timeline	Formally launched on 30 August 2000 and operational from 1 January 2000.
Corpus Contribution	Government and SIDBI contribute to the Trust in the ratio of four to one.
Eligible Lending Institutions	Scheduled commercial banks, including public sector, private sector, and foreign banks, select Regional Rural Banks classified as Sustainable Viable by NABARD, National Small Industries Corporation, North Eastern Development Finance Corporation, and SIDBI.
Eligible Credit Facilities	Term loans and working capital facilities up to one hundred lakh rupees per unit, extended without collateral or third-party guarantee.
Coverage for Loans Above Fifty Lakh Rupees	Loans above fifty lakh rupees may still be sanctioned, but guarantee cover is limited to fifty lakh rupees.
Exclusions	Credit already covered by another Government or agency guarantee scheme is not eligible.
Enhanced Guarantee Cover (Eighty Percent)	Applicable for micro enterprises with loans up to five lakh rupees, women-owned or women-operated Micro and Small Enterprises, and all eligible units in the North East Region.
Fees Payable	One-time guarantee fee of one point five percent and annual service fee of zero point seven five percent. For loans up to five lakh rupees, the fees are one percent and zero point five percent, respectively. In the North East Region, the one-time fee is zero point seven five percent.
Operational Platform	Entire scheme operations are conducted through the official CGTMSE website.

What is CGTMSE Eligibility?

There comes a point in every first-generation entrepreneur’s journey when the dream feels larger than the resources available, and it is precisely for this moment that the CGTMSE scheme exists, ensuring that a lack of family assets or inherited security does not lead to a capable business idea being abandoned.

See if you are eligible for CGTMSE coverage!

Category	Details
Eligible Enterprise Type	New or existing Micro and Small Enterprises engaged in manufacturing or service activities, formally recognised under the Micro, Small and Medium Enterprises Development Act.
Activities Not Eligible	Self-help groups, agriculture and allied activities, retail trade, training institutions, and educational institutions are excluded from the scheme.
Legal Requirements	The enterprise must comply with all applicable laws and regulations, including registration under the MSMED Act and possession of valid statutory documents.
Age Requirement of Borrower	The individual borrower must be at least eighteen years old to qualify for credit under the scheme.
Eligible Lenders	The credit facility must be sanctioned by a bank, Non Banking Financial Company, or financial institution that is officially registered as a Member Lending Institution under the CGTMSE framework.

What is CGTMSE Coverage?

CGTMSE coverage refers to the percentage of a loan that the Trust guarantees on behalf of the borrower to reduce the lender’s risk. The guarantee applies to eligible collateral-free credit facilities up to a maximum limit of ten crore rupees.

Credit Guarantee Coverage Structure under CGTMSE

Category	Upto ₹5 lakh	Above ₹5 lakh and upto ₹50 lakh	Above ₹50 lakh and upto ₹10 crore
Micro Enterprises	85%	75%	75%
MSEs in the North East Region, UT of Jammu and Kashmir, UT of Ladakh	80%	80%	80%
Women Entrepreneurs / MSEs promoted by Agniveers	90%	90%	90%
SC / ST Entrepreneurs, Persons with Disability, MSEs in Aspirational Districts, ZED Certified MSEs	85%	85%	85%
All Other Categories of Borrowers	75%	75%	75%

Additional Benefit for Identified Credit Deficient Districts (ICDD)

MSEs located in RBI identified Credit Deficient Districts receive an additional 5 percent guarantee coverage over the applicable rate from 15 December 2023.

For example:

• If standard coverage is 75 percent, revised coverage becomes 80 percent.
• If standard coverage is 80 percent, revised coverage becomes 85 percent.
• If standard coverage is 85 percent, revised coverage becomes 90 percent.

CGTMSE Financial Charges, Loan Assessment Criteria, and Mandatory Documentation

Let us understand the CGTMSE fees, charges, and your loan interest rate.

CGTMSE Fees and Charges

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) fees are levied as an Annual Guarantee Fee, which is calculated on the guaranteed amount in the first year and on the outstanding amount in subsequent years. 

• There are no separate service charges collected by the Trust. 
• CGTMSE charges vary by loan size and risk band. 
• The lowest slab begins at approximately zero point three seven percent for loans up to ten lakh rupees. 
• The fee increases with loan size, but recent circulars have reduced AGF for guarantee above one crore rupees, extending concessions all the way to the upper limit of ten crore rupees.

CGTMSE Loan Interest Rate

The guarantee fee now begins at 0.37 percent for loans up to ₹10 lakh and rises to 1.20 percent for loans between ₹8 crore and ₹10 crore.

CGTMSE Guarantee Fee Structure (Effective 1 April 2025)

Loan Amount	Revised Annual Guarantee Fee
Up to ₹10 lakh	0.37%
Above ₹10 lakh to ₹50 lakh	0.55%
Above ₹50 lakh to ₹1 crore	0.60%
Above ₹1 crore to ₹2 crore	0.85%
Above ₹2 crore to ₹5 crore	1.00%
Above ₹5 crore to ₹8 crore	1.10%
Above ₹8 crore to ₹10 crore	1.20%

Important Considerations

• These charges represent the CGTMSE guarantee fee only and not the interest rate charged by the lending institution.
• This revised fee structure, announced in March 2025, applies to all guarantees approved or renewed on or after 1 April 2025.
• Certain units, including enterprises located in notified regions or certified under the Zero Defect Zero Effect programme, may receive a ten percent discount on the applicable guarantee fee.

CGTMSE Loan Eligibility

• New and existing Micro and Small Enterprises, including proprietary firms, partnerships, Limited Liability Partnerships, and private or public limited companies, are eligible.
• Enterprises must be engaged in manufacturing, services, or trading activities.
• Agriculture, self-help groups, educational institutions, and training institutions are excluded.
• The loan must be taken from a registered Member Lending Institution such as a public sector bank, private sector bank, Regional Rural Bank, or recognised financial institution.
• The borrower must not have defaulted on any previous loans with any bank or financial institution.
• The scheme covers credit facilities up to ten crore rupees from a single Member Lending Institution.
• The borrower must possess a valid Udyam Registration number and a Permanent Account Number for loans above five lakh rupees.

CGTMSE Loan Documents

• Completed application form for the CGTMSE-supported loan.
• Udyam Registration Certificate and business incorporation or registration documents.
• A detailed business plan or project report demonstrating technical feasibility and financial viability.
• Know Your Customer documents of the promoters, including identity and address proof, passport-sized photographs, Aadhaar card, and Permanent Account Number.
• Financial statements, including income tax returns, balance sheets, and bank statements for existing enterprises.
• Financial projections, including expected revenue, expenses, and cash flow for new enterprises.
• Loan sanction letter or approval letter issued by the lending institution.
• Additional documents requested by the Member Lending Institution during the appraisal process.

What are the CGTMSE Benefits?

For thousands of entrepreneurs, the CGTMSE scheme has been the turning point where small enterprises can finally operate without constant financial constraints.

• Provides collateral-free access to term loans and working capital facilities for eligible Micro and Small Enterprises.
• Helps first-generation entrepreneurs and small businesses secure essential funding for expansion, infrastructure, and working capital requirements.
• Offers guarantee coverage ranging from 75 percent to 85 percent, and up to 90 percent for categories such as women entrepreneurs and Scheduled Caste or Scheduled Tribe entrepreneurs.
• Supports enterprises with loan limits up to ten crore rupees.
• Extends special benefits to women-led enterprises, Scheduled Caste and Scheduled Tribe units, and enterprises located in the North East Region and other priority districts.
• Encourages financial institutions to lend more actively to the Micro and Small Enterprise sector by mitigating lending risks.

How to Apply for the CGTMSE Scheme?

Here are the quick steps to apply for the CGTMSE Scheme –

• Register the business and obtain all mandatory approvals, including the Udyam Registration.
• Prepare a comprehensive business plan supported by detailed financial projections.
• Identify and approach a Member Lending Institution that participates in the CGTMSE scheme.
• Submit the loan application along with all required documents for evaluation.
• Upon loan sanction, the bank applies for the guarantee cover through the official CGTMSE portal.
• Pay the applicable annual guarantee fee once the guarantee is approved.
• Receive the loan disbursement after all formalities are completed and the guarantee is in place.

Final Words

The CGTMSE Scheme strengthens credit access for the backbone of the Indian economy. Through a structured guarantee mechanism, clear eligibility norms, transparent fees and significant coverage, it makes collateral-free credit a practical reality for Micro and Small Enterprises. 

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CGTMSE Scheme FAQs

Source– https://msme.gov.in/