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In a move to boost access to capital for early-stage businesses, the Government of India has expanded the Credit Guarantee Scheme for Startups (CGSS), doubling the maximum guarantee cover per borrower from Rs 10 crore to Rs 20 crore.
The Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, notified the changes as part of ongoing efforts to strengthen the startup ecosystem.
The revised scheme increases the extent of guarantee cover to 85% of the defaulted amount for loans up to Rs 10 crore, and 75% for loans exceeding Rs 10 crore. The changes aim to reduce the financial risk for lenders, encouraging more financial institutions to support innovation-led startups.
Reduction in AGF
As an added incentive, the Annual Guarantee Fee (AGF) has been reduced from 2% to 1% per annum for startups operating in 27 Champion Sectors identified under the government’s ‘Make in India’ initiative. These sectors were selected to drive growth in manufacturing and services, and the lower fee is expected to make borrowing more attractive in these priority areas.
The expanded CGSS reflects the government’s broader vision of transforming India into a self-reliant, innovation-driven economy. The changes are designed to improve credit flow to startups, allowing them to invest in research & development (R&D), experimentation, and new technologies.
Several operational reforms and other enabling measures identified through consultations with the startup ecosystem have also been included in the expanded CGSS to make the Scheme attractive for lenders and startups seeking funding support.
The expansions and modifications are expected to give thrust to the Scheme and enable a wider range of startups to benefit to propel the country towards becoming a Viksit Bharat.
Purpose of CGSS
Originally notified on October 6, 2022, the CGSS was introduced to provide a guarantee up to a specified limit against credit instruments extended to startups by Scheduled Commercial Banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies and SEBI-registered Alternative Investment Funds (AIFs).
The broad objective of CGSS is to finance eligible startups by enabling collateral-free debt funding to startups through avenues such as working capital, term loans, and venture debt.
To further catalyse entrepreneurship by providing enhanced credit support to innovators and encouraging financial institutions in the ecosystem to provide early-stage debt funds to startups, the Union Budget 2025-26 had proposed the enhancement of credit availability with guarantee cover for startups.
With startup funding in India witnessing a decline in recent years—dropping 17% in FY24, according to a report by Wealth 360 One—the expanded scheme is expected to offer timely support. According to the reports, startups raised around $8 billion in FY24, a sharp fall from the previous fiscal year.
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