June 22, 2024
Collateral-Free Credit Facility

India’s Micro, Small and Medium Enterprises is one of the leading sectors of our economy and generated about Rs. 14,000 Crore in FY 2018-19.

With even more new start-ups, small businesses and enterprises venturing into starting their operations in FY 2019-20, demand for a steady source of capital has never been higher.

Whether it is working capital or finances for the purchase of new equipment, MSMEs require funds for various needs.

Even with the availability of advances, MSMEs in their nascent stage fail to accumulate the required capital to kick-start their businesses.

To fulfil this demand for capital, the government has introduced the Credit Guarantee Fund Trust for Micro and Small Enterprises. CGTMSE helps to provide financial assistance to MSMEs without the involvement of any third party or without pledging any collateral.

Following is an elaboration of various aspects of this scheme.

What does CGTMSE scheme offer?

Under this scheme, micro and small business units can avail working capital and term loans to fulfil their financial requirements.

Following are the objectives of this scheme –

  • It offers credit assurance to lenders that in case of loan defaults by borrowers, this scheme will provide a guarantee cover of up to 85% of the availed loan amount.
  • The trust will provide a 50% guarantee for advances ranging between Rs. 50 Lakh and Rs. 1 Crore.
  • In the case of micro-enterprises, it offers a guarantee cover of up to 85% for loans amounting up to Rs. 50 Lakh.
  • For MSMEs headed by women entrepreneurs, this trust offers repayment of up to 80% of the loan amount availed. This cover is also available for advances offered by MSMEs in the North East region of the country.

The repayment under this scheme is carried on against the lower amount among the following categories –

  • Total loan amount including interest for 3 months.
  • Outstanding loan amount along with interest from the date of filing suit.
  • From the date, the loan is declared as a non-performing asset.

Apart from guarantee covers provided by CGTMSE, it also provides collateral-free advances to requisite organisations. Individual MSMEs can avail an amount of up to Rs. 50 Lakh under this scheme.

CGTMSE A Collateral-Free Credit Facility Introduced for MSMEs

Charges applicable under the trust –

Businesses availing the benefits of this trust are charged as follows –

  1. 0.75% of the credit availed for an amount of up to Rs. 5 Lakh.
  2. 0.85% of credits availed for an amount ranging between Rs. 5 Lakh and Rs. 1 Crore.

Who can apply for the CGTMSE scheme?

This scheme for MSME loans can be availed by both existing and new MSMEs. MSMEs engaged in the following sectors are eligible to avail the benefits of this scheme –

  • Manufacturing industry.
  • Service industry, except educational institutions, retail trade, self-help groups, training institutions, etc.

How can MSMEs avail of CGTMSE scheme?

To avail of the benefits offered by this scheme, individuals have to follow the procedure provided below –

  1. To best benefit from this scheme, business owners must prepare a proper business plan which includes all the requisite financial details. This business plan or model should be able to explain the project’s viability.
  2. After submitting the business plan, the trust decides a financial institution to be approached for this advance. The plan is then submitted to the respective financial institution.
  • The financial institution will then check the application details and verify them.
  1. After verification, the lender will send the application for further verification to the CGTMSE regulatory authorities. If the plan is approved, the fund will instruct the financial institution to release the funds to the borrower.

Thus, this MSME loan is not just an efficient financing solution for MSME but it can also help you to reduce the financial liability of lenders to quite an extent as well and compel them to disburse loans more easily. Indirectly, this scheme aims to open up more financing avenues for the whole sector.

However, it is crucial for businesses to check the eligibility and required documents before applying to avoid any hassle in the application process. Availing a loan with the most beneficial terms is vital to lower the overall financial burden.

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