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CGTMSE Scheme - Loan, Fee, Full Form, Eligibility

CGTMSE Scheme

Are you an entrepreneur searching for a competitive Business Loan interest rate? Well, getting a loan approved at a competitive rate is difficult, especially for small businesses with a minimal credit score or fewer financial relationships with lenders.

Thanks to the Government of India, small businesses can get loans at impressive rates without collateral. The highly popular CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) scheme does the job for such small business owners. Against a small CGTMSE fee, small businesses can get collateral-free loans.

Besides revealing the CGTMSE full form, this article will focus on its benefits, eligibility criteria, documentation requirements, and application steps.

What is Credit Guarantee under CGTMSE Scheme?

The full form of CGTMSE is Credit Guarantee Fund Trust for Micro and Small Enterprises. Against this scheme, micro and small businesses can get loans without collateral, and the government offers credit guarantees to financial institutions.

CGTMSE loan eliminates the need for third-party guarantees. Under this scheme, a credit guarantee of up to 85% of the loan amount is covered. Such schemes support the growth and development of small and micro businesses in the country.

Benefits of the CGTMSE Scheme

CGTMSE loans are immensely popular among small business owners. Here are the benefits of applying for a Business Loan under this scheme.

  1. Collateral-free loans: Small businesses get these loans without the requirement of providing collateral or third-party guarantees.

  1. Loan coverage: The guarantee range for the loan coverage is up to Rs. 500 lakhs.

  1. Loan amount: MSEs can avail of loans up to a specified limit. The cap is decided based on the category and type of the business.

  1. Coverage for multiple sectors: The scheme provides loans to businesses instrumental in the manufacturing, services, and retail sectors.

  1. Loan tenure: MSEs can have a longer repayment duration under this scheme.

  1. Simplified application process: The scheme has streamlined the loan application process and made it simple and accessible for small businesses.

  1. Fee structure: The CGTMSE charges a guarantee fee, which they have reduced to 10%.

Eligibility Criteria for CGTMSE Loan

Excited to get a collateral-free loan? Before you apply, it is essential to understand the CGTMSE scheme eligibility. Let’s find out who is eligible to get a CGTMSE loan.

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  • Business classification: You are eligible if your business is identified as MSE as defined by the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.

  • Sector coverage: Businesses operating in manufacturing, services, retail, and agriculture sectors are eligible.

  • Loan amount: The loan amount may change depending on periodic revisions. Currently, the cap is set at a maximum of Rs. 500 lakhs.

All eligible business owners can apply for CGTMSE loans at financial institutions or non-banking financial companies (NBFCs) like Hero FinCorp, registered with RBI.

Documents required for CGTMSE loan application

Document requirements may change depending on the lending institutions. Generally, a borrower should have identity proof, address proof, business registration documents, bank statements, financial statements, business plans, ownership proof, trade licences, GST registration documents and other industry-specific documentation (NOC) at the time of loan application.

The borrower must pay a nominal CGTMSE fee along with the loan application form. The fee is based on the loan amount and may change due to periodic revisions in the scheme. Here is an overview of the fee structure under the CGTMSE scheme.

Slab

Standard Rate (pa)*

0-10 lakh

0.37

Above 10-50 lakh

0.55

Above 50-1 crore

0.60

Above 1-2 crore

1.20

Above 2-5 crore

1.35

Annual Guarantee Fee (AGF) structure under Credit Guarantee Scheme (CGS -I) as of April 01, 2023

Steps to avail of Business/MSME Loan under the CGTMSE Scheme

This attractive collateral-free Business Loan scheme is indeed an empowering movement for businesses. Those who want to know how to apply for the CGTMSE scheme can follow the steps suggested below.

Step 1. Formation of the Business Entity

The first step is to establish your business entity. Complete the business registration as per the applicable laws and regulations. Choose the appropriate legal structure, such as a sole proprietorship, partnership, or private limited company and arrange all the necessary documents and registrations before applying for the loan. You might need the Certificate of Incorporation, Partnership Deed, or any other relevant registration documents at the time of loan application.

Step 2. Preparing a Business Report

In the next step, you need a report that outlines your business details. For instance, the nature of operations, target customers and financial statements. You might have to gather information regarding your business that will confirm to the lender that your business has cash flow projections and potential. In other words, your business report is a crucial document you will need to convince lenders of the feasibility of your loan application.

Step 3. Sanctioning of Loan from the Bank

Next, you approach a financial institution supporting the CGTMSE scheme. Submit the loan application with the required documents, such as a business report, financial statements, and identity proof. The bank will evaluate your application based on their assessment criteria and the CGTMSE guidelines. Upon approval, the bank will issue a loan sanction letter specifying the loan amount, terms, and conditions.

Step 4. Obtaining the Guarantee Cover

After loan approval, the financial institution submits the necessary documentation to CGTMSE on your behalf. This documentation includes loan details, borrower information, and relevant loan terms. CGTMSE authorities will review the application, and upon approval, the guarantee cover will be provided to the lending institution. This cover acts as insurance against the Business Loan you applied for. Once the lender obtains the cover, the loan amount will be disbursed.

Conclusion

If you run a small or micro-scale entity, getting a Business Loan without collateral is possible. All you need is the government's support in the form of guarantee cover under the CGTMSE scheme. Credit constraints will no longer be a challenge for you. If you want to obtain an unsecured loan as a small business owner, it is possible under these guarantee coverage schemes. Gather all the required documents, pay the applicable CGTMSE fee and foster your growth and development.

FAQ

  1. What is the maximum loan amount covered under CGTMSE?

The maximum loan amount covered under the CGTMSE scheme is Rs. 500 lakhs.

  1. How long is CGTMSE coverage?

The coverage provided under the CGTMSE scheme is for five years, which can be renewed by paying the applicable fee.


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Did You Know

Disbursement

The act of paying out money for any kind of transaction is known as disbursement. From a lending perspective this usual implies the transfer of the loan amount to the borrower. It may cover paying to operate a business, dividend payments, cash outflow etc. So if disbursements are more than revenues, then cash flow of an entity is negative, and may indicate possible insolvency.

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