How to get Business Loan under CGTMSE Central Government Scheme

 How to get Business Loan under CGTMSE Central Government Scheme

Introduction :

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a central government scheme of India launched in 2000 to provide credit guarantee to micro and small enterprises (MSEs) up to a certain limit. The scheme is managed by the Credit Guarantee Fund Trust for Micro and Small Enterprises, which is jointly set up by the Ministry of Micro, Small and Medium Enterprises (MSME) and the Small Industries Development Bank of India (SIDBI).

Under the scheme, MSEs can avail collateral-free loans up to a maximum of Rs. 2 crore from banks and financial institutions, without having to provide any collateral security. The CGTMSE provides a credit guarantee cover to the lending institutions against any loss suffered by them due to the failure of the MSE borrower to repay the loan.

The scheme aims to encourage banks and financial institutions to lend to MSEs without any fear of loss and to promote the growth of the sector by providing them with timely and adequate credit. The scheme also supports the government's efforts to promote entrepreneurship and generate employment opportunities in the country.

Eligibility :

The following are the eligibility criteria for availing credit guarantee under the CGTMSE scheme:

1.The enterprise should be a micro or small enterprise as per the definition provided by the MSMED Act, 2006.

2.The enterprise should be engaged in manufacturing or service activities.

3.The enterprise should not be engaged in any agricultural or allied activities, and it should not be a retail trader.

4.The maximum credit facility granted to the enterprise should not exceed Rs. 2 crore, including term loan and working capital.

5.The enterprise should not be in default to any bank or financial institution.

6.The enterprise should not be a member of any industrial sick list maintained by the Reserve Bank of India or the State Government.

7.The enterprise should not have any wilful default or fraud case reported against it.

8.The enterprise should have a satisfactory credit record and should be rated by the lending institution as per its internal rating policy.

9.The lending institution should be an eligible institution registered under the CGTMSE scheme.

Note that these eligibility criteria are subject to change, and interested applicants should check the latest information on the CGTMSE website or consult with the lending institution

Key Features:

The following are the key features of the CGTMSE scheme:

Collateral-free loans: The CGTMSE scheme provides collateral-free loans up to Rs. 2 crore to micro and small enterprises (MSEs) from banks and financial institutions. This helps MSEs who do not have sufficient collateral to get loans and encourages entrepreneurship.

Credit guarantee cover: The scheme provides a credit guarantee cover to the lending institutions against any loss suffered by them due to the failure of the MSE borrower to repay the loan. This encourages lending institutions to provide loans to MSEs without any fear of loss.

Coverage of multiple credit facilities: The scheme covers multiple credit facilities such as term loans and working capital loans, including composite loans. This helps MSEs to get a comprehensive package of financial support.

Guarantee fee: The lending institution pays a nominal guarantee fee to the CGTMSE for the credit guarantee cover. The guarantee fee varies depending on the amount of the loan and the credit rating of the borrower. This helps to make the scheme self-sustainable.

Quick approval: The lending institution can get quick approval for the credit guarantee cover from the CGTMSE. This helps in expediting the loan approval process.

No margin requirement: The scheme does not require any margin from the borrower for the credit facility covered under the scheme. This helps MSEs to conserve their working capital.

Non-discretionary: The guarantee cover under the scheme is non-discretionary, i.e., if the lending institution has complied with the terms and conditions of the scheme, the CGTMSE is bound to honour the claim.

Overall, the CGTMSE scheme has been designed to promote the growth of micro and small enterprises in India by providing them with easy access to credit and encouraging lending institutions to provide loans to these enterprises

Applications of this Scheme:

The application process for availing the CGTMSE scheme is as follows:

1.MSEs who wish to avail the benefits of the CGTMSE scheme should approach an eligible lending institution such as a bank or financial institution.

2.The lending institution will evaluate the proposal and assess the creditworthiness of the borrower as per their internal rating policy.

3.If the lending institution approves the proposal, it will submit an application to the CGTMSE for the credit guarantee cover.

4.The CGTMSE will verify the application and approve it if all the criteria are met.

5.Upon approval, the CGTMSE will issue a letter of guarantee to the lending institution, and the loan will be disbursed to the borrower.

6.The borrower will have to pay a nominal guarantee fee to the lending institution, which will be passed on to the CGTMSE.

7.In case of default by the borrower, the lending institution can invoke the credit guarantee cover provided by the CGTMSE to recover the outstanding amount.

Note that the actual process may vary depending on the lending institution and the type of loan applied for. Also, the eligibility criteria and terms of the scheme are subject to change, and interested applicants should check the latest information on the CGTMSE website or consult with the lending institution.

Documents required for CGTMSE scheme :

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a scheme launched by the Government of India to provide collateral-free credit to micro and small enterprises. To avail of the benefits of this scheme, the following documents are typically required:

1.Application Form: The application form for the CGTMSE scheme needs to be duly filled in and signed by the authorized signatory of the borrower.

2.Project Report: A detailed project report outlining the business plan, financial projections, and other relevant information related to the enterprise.

3.KYC Documents: Know Your Customer (KYC) documents of the borrower, including PAN card, Aadhaar card, and any other identification documents.

4.Bank Statements: The bank statements of the borrower for the past six months.

5.Income Tax Returns: The income tax returns of the borrower for the past two years.

6.Proof of Business Existence: Documents proving the existence of the business, such as a registration certificate, trade license, or any other relevant certificate.

7.Business Plan: A comprehensive business plan that outlines the goals and objectives of the enterprise, as well as the strategies to achieve them.

8.Financial Statements: The financial statements of the enterprise, including balance sheets, profit and loss statements, and cash flow statements, for the past two years.

9.Other relevant documents: Any other relevant documents required by the lending institution or CGTMSE, such as property documents, security documents, and guarantor documents.

It is essential to note that the documentation requirements may vary depending on the lending institution and the nature of the enterprise. Therefore, it is advisable to consult with the lending institution or a financial expert for a complete and accurate list of documents required to apply for the CGTMSE scheme.

Maximum Guarantee Cover:

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme provides a credit guarantee cover to the lending institutions against the default of loans extended to micro and small enterprises (MSEs). The maximum guarantee cover under the CGTMSE scheme depends on the loan amount and the category of the borrower.

For Micro Enterprises:

The maximum guarantee cover is up to 85% of the loan amount or Rs. 62.5 lakh, whichever is lower.

For Small Enterprises:

The maximum guarantee cover is up to 75% of the loan amount or Rs. 1.5 crore, whichever is lower.

It is important to note that the guarantee cover is available only on the amount in default, which means that the lending institution can recover the remaining amount from the borrower's assets or any other available source. Additionally, the guarantee cover is available only for credit facilities up to Rs. 2 crore, and the guarantee fee charged by CGTMSE is 1% of the loan amount.

Overall, the CGTMSE scheme provides a significant benefit to MSEs by enabling them to access credit without the requirement of collateral. The scheme also encourages lending institutions to lend to MSEs by providing a credit guarantee cover against defaults, thereby reducing the credit risk associated with lending to this sector