CGTMSE Scheme: Full Form, Meaning, Eligibility & Fee Structure

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The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme is a financial safety net for small businesses. It offers a shield against business uncertainties by guaranteeing micro and small enterprises credit facilities. If you are wondering about its eligibility, loan coverage, or the full form, this article is for you.

CGTMSE Full Form and Meaning

Serving as a financial safeguard, CGTMSE (Credit Guarantee Trust Fund for Micro and Small Enterprises) encapsulates its purpose. Established in August 2000, the Credit Guarantee Fund Trust Fund for Micro and Small Enterprises (CGTMSE) is a pioneering initiative of the Indian Government, operating under the Ministry of Micro, Small and Medium Companies and the Small Industries Development Bank of India (SIDBI).

This scheme addresses a crucial entrepreneurial need by allowing enterprises to secure non-collateral loans. Acting as the guarantor, the Government covers a substantial portion of the sanctioned loan. It supports existing and nascent businesses across various sectors, offering credit assurances of up to Rs.5 Crore. The coverage, ranging from 75% to 80%, is determined by factors like loan amount and the applicant's profile. With minimal interest rates and a structured fee system, CGTMSE propels the growth of micro and small enterprises.

How CGTMSE Works?

The CGTMSE scheme is a protective shield for lenders dealing with micro and small enterprises. It offers credit guarantees, easing the apprehensions of financial institutions and banks. These entities act as intermediaries in this mechanism, facilitating the scheme's implementation. Their role involves assessing the creditworthiness of businesses and disbursing loans, with the CGTMSE stepping in to guarantee against potential defaults.

This collaboration ensures businesses categorised as micro and small enterprises receive the necessary financial support. The scheme encompasses various types of loans, including term loans and working capital facilities, providing a comprehensive safety net for lenders and borrowers alike. By mitigating the risks associated with lending to smaller enterprises, the CGTMSE scheme encourages financial institutions to support the growth and development of these businesses, contributing to the overall economic landscape.

Also Read: Government Loan Schemes for Small Businesses

CGTMSE Scheme Eligibility

Here are the eligibility criteria for CGTMSE:

Age: Indian citizens aged 18 and above are eligible.
Enterprise Type: Applies to new and existing enterprises.
Sector: Covers trading, manufacturing and service activities as per MSMED Act, 2006.
Credit Facilities: Must be obtained from a single enlisted lending institution specified by the CGTMSE scheme.
Support: Enterprises already supported by State-level Institutions/NSIC/NEDFi are eligible.

CGTMSE Loan Coverage and Limit

The CGTMSE scheme offers a financial umbrella covering various types of loans, including term loans and working capital loans. This inclusive approach supports both new and existing enterprises, promoting a diverse range of businesses. The maximum CGTMSE coverage limit reaches up to Rs.500 lakh, providing substantial financial backing to eligible micro and small enterprises.

Guarantee Fee Structure

The CGTMSE scheme employs a structured guarantee fee system based on the loan amount, with varying rates for different credit facilities. For loans up to Rs.10 lakh, the Annual Guarantee Fee (AGF) is 0.37% plus GST of the credit facility or the actual sanctioned amount, whichever is higher. The fee for loans exceeding Rs.10 lakh and up to Rs..50 lakh is 0.55% plus GST, while amounts ranging from above Rs.50 lakh to Rs.100 lakh increase to 0.60% plus GST.

Additionally, for loans above Rs.100 lakh up to Rs.200 lakh, the AGF is 1.20% plus GST; for loans above Rs.200 lakh up to Rs.500 lakh, it is 1.35% plus GST. Notably, women, SC/ST, Micro Enterprises, ZED certified Units, and Units covered in the North East Region & Aspirational Districts qualify for an additional 10% discount on the applicable guarantee fee.

Borrowers and financial institutions share the responsibility of paying this fee. Borrowers remit it upfront, while financial institutions collect and remit it to CGTMSE. This CGTMSE fee structure significantly influences the cost of borrowing for Micro and Small Enterprises (MSEs), providing a safety net without unduly burdening their financial obligations.

Small and medium enterprises aspiring to benefit from the CGTMSE scheme must complete a structured application process:

Steps for CGTMSE Application Process

Step 1: Register your business entity and secure necessary approvals and tax registrations. Without government registration, loan application is not possible.
Step 2: Develop a comprehensive business plan, including the business model and financial projections. Submit this plan to Kotak Mahindra Bank, determining loan eligibility.
Step 3: Alongside the business plan, submit a CGTMSE application with requisite details, downloadable from the official website (CGTMSE.org.in).
Step 4: Kotak initiates the analysis and verification process, adhering to its policies. Loan sanction time varies.
Step 5: Kotak applies to CGTMSE for collateral guarantee. Upon CGTMSE approval, pay the one-time fee and service charges as per the sanctioned loan amount.

Important Note: CGTMSE covers only part of the loan collateral; additional security is required for the remaining credit amount.

CGTMSE Benefits & Impact

Encourages Lending: Financial institutions are more inclined to lend to MSEs under the CGTMSE scheme
Business Expansion: Access to credit supports MSEs in expanding operations and market reach
Employment Opportunities: Financial stability fosters job creation, contributing to local economic development
Collateral-Free Loans: Micro and small enterprises can access loans without substantial collateral
Entrepreneurial Ecosystem: CGTMSE nurtures a conducive environment for entrepreneurship, enhancing the socio-economic fabric
Risk Mitigation: The scheme provides a credit guarantee against default, reducing risk for lenders
Encourages Lenders: The scheme encourages financial institutions to lend to small enterprises
Economic Contribution: Facilitates the contribution of small businesses to the overall economic development

The CGTMSE scheme not only safeguards lenders but also fuels economic and social development by empowering micro and small enterprises, driving job creation, and fostering financial stability.

Also Read: Types of business loan in india

Conclusion

The CGTMSE scheme is a lifeline for micro and small enterprises (MSEs), offering financial security and growth opportunities. MSEs should proactively leverage the benefits provided by the scheme to navigate the challenges of the business landscape. The scheme plays a pivotal role in fostering entrepreneurship and contributing to overall economic growth. By providing a credit guarantee, the scheme empowers MSEs to access the funds needed for expansion and sustainability.