Government announces credit guarantee programme for startups

• ByStartupStory     |    October 7, 2022

The government has informed the startup credit guarantee programme that it will offer loans without collateral up to a certain amount. The Department for Promotion of Industry and Internal Trade (DPIIT) announced in a notification that credit and debt facilities granted to qualified borrowers on or after October 6 would be covered by the programme.

According to the statement, “The Credit Guarantee Scheme for Startups (CGSS) has been approved by the Central Government to provide credit guarantees on loans issued by member institutions (MIs) to fund eligible borrowers who are startups. This plan will aid in supplying startups with crucial debt financing without the need for any collateral, it continued.

Financial intermediaries (banks, financial institutions, NBFCs, and AIFs) that participate in lending or investing and meet the qualifying requirements outlined in the Scheme are considered MIs.

To be eligible for this program’s benefits, startups must be recognised, have a stable revenue stream that is amenable to debt financing as determined by audited monthly financial statements covering 12 months, be in good standing with all lending and investing institutions, and not be considered a non-performing asset as defined by the RBI.

“Per borrower, the maximum guarantee cover cannot exceed Rs 10 crore. There should have been no other guarantee scheme covering the credit facility being discussed here “explained the Department.

For this scheme, the Indian government will establish a trust or fund, which will be overseen by the Board of National Credit Guarantee Trustee Company Ltd as the Fund’s Trustee, to guarantee payment against default in loans or debt provided to qualified borrowers.

Additionally, it stated that lending institutions must examine credit applications using prudent banking judgement, apply business judgement and due investigation to choose commercially 

viable ideas, and manage borrower accounts with typical banking prudence.

These institutions ought to be required to keep a tight eye on the borrower account. A Management Committee will also be established by the DPIIT to manage the trust’s operations. The committee will be in charge of examining, supervising, and monitoring how the trust is operating. It will also be required to give the trust the necessary direction on broad policy issues about the plan.

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