Centre Approves Revised Credit Guarantee Scheme For Startups

SUMMARY

Maximum guarantee cover per borrower under the Credit Guarantee Scheme for Startups has been increased to INR 20 Cr from INR 10 Cr, with up to 85% guarantee on loans

The Department for Promotion of Industry and Internal Trade (DPIIT) said that this notification supersedes the earlier notification dated October 6, 2022 on the scheme and comes into effect from May 8

The scheme aims at improving access to collateral-free debt funding to startups via banks, NBFCs, AIFs and other registered financial entities

The government has approved a revised Credit Guarantee Scheme for Startups (CGSS), doubling the maximum guarantee cover per borrower to INR 20 Cr from INR 10 Cr.

The scheme aims at improving access to collateral-free debt funding to startups via banks, NBFCs, AIFs and other registered financial entities.

The extent of guarantee cover provided has also been increased up to 85% of the amount in default for loan amount up to INR 10 Cr and 75% of the amount in default for the loan amount exceeding INR 10 Cr.

Further, the annual guarantee fee (AGF) for startups in 27 champion sectors has been reduced to 1% per annum from 2% earlier.

The changes follow announcements made in the Union Budget 2025-26 and are aimed at encouraging financial institutions to extend early stage debt while supporting innovation and entrepreneurship.

The revamped CGSS marks a continuation of the Centre’s broader strategy to boost startup financing in India. Back in October 2022, when the CGSS was approved, DPIIT’s focus was on enabling collateral-free credit as a counterbalance to the equity-heavy funding landscape.

This was positioned as a lifeline amid declining venture capital inflows post-2021’s funding boom.

The move comes after Finance Minister Nirmala Sitharaman announced in her Union Budget 2025 speech in February that the guarantee fee under the credit guarantee scheme for startups for credit between INR 10 Cr to INR 20 Cr for 27 focus sectors would be cut to 1%.

Back then, the minister also announced that the credit guarantee scheme would be extended to MSMEs availing loans between INR 5 Cr and INR 10 Cr, and exporter MSMEs seeking term loans up to INR 20 Cr, aiming to inject an additional INR 1.5 Lakh Cr in credit flow over five years.

This revision addresses concerns highlighted in earlier reports which noted the limited adoption of the original CGSS due to eligibility constraints and low lender participation.