CGTMSE: how a small business borrows without pledging property

02How much credit can carry the cover?

The ceiling is INR 10 crore per borrower for loans from public sector, private and foreign banks and select financial institutions. CGTMSE raised it from INR 5 crore after the 2025-26 Budget announcement, for guarantees approved on or after 1 April 2025.

The ceiling counts your covered exposure across every lender, so two banks can share it. Working capital limits and partly drawn term loans count at the full sanctioned amount. Other lenders work to lower limits: INR 2 crore at co-operative banks, regional rural banks, small finance banks and state financial corporations, and INR 50 lakh at microfinance institutions. NBFCs lend under a separate CGTMSE scheme, CGS-II, capped at INR 5 crore.

Borrow more than INR 10 crore and only INR 10 crore of the loan is covered. At the 75% tier, the most the trust will pay for one borrower is INR 7.5 crore.

Term loans, working capital, bank guarantees and letters of credit all qualify, new or running, at any interest rate RBI rules permit. A term loan stays covered for its tenure plus four months; working capital in renewable five-year blocks. On a hybrid loan, the lender takes collateral for part and puts the unsecured rest under the guarantee.

04Who qualifies, and who is turned away?

The borrower needs three things.

• To be a micro or small enterprise, new or existing. A medium enterprise falls outside the scheme.
• A Udyam Registration Number, which the lender enters on every guarantee application, plus an income-tax PAN for a loan above INR 5 lakh.
• An eligible activity: manufacturing, services under the MSMED Act (small road and water transport included), retail and wholesale trade, or education and training.

Agriculture is excluded, and so are self-help groups and joint liability groups. Nor can the cover go on a facility that is already a non-performing asset. It is also barred for a borrower whose earlier guaranteed loan was invoked and who has repaid none of the amount due.

No business form is shut out: the scheme's own definitions name proprietorships, partnerships, LLPs, companies, trusts and Hindu Undivided Families. The lender must also judge the proposal commercially viable, and any facility above INR 50 lakh needs an investment-grade internal rating.

06What does the annual guarantee fee add to your borrowing cost?

The guarantee has a price. The trust charges an annual fee on the guaranteed amount in the first year and on the outstanding amount after that. Your lender pays it, and may recover it from you.

Your slab follows your total covered exposure, so a second loan can push you into a higher band. The trust raises each year's demand in February, and the lender pays by 30 March.

The lender's own record moves the price too. A lender with a strong portfolio gets 10% off the standard rate. One judged high-risk pays up to 70% more, and a newly registered lender pays that full premium for at least its first year. The same loan can cost noticeably more at one bank than another.

Some borrowers pay less, with 10% off the rate for each of three groups they fall in, up to 30%. One group is social: women, SC, ST, transgender and disabled entrepreneurs, and MSEs promoted by Agniveers.

Another is geographic: the North East including Sikkim, Jammu and Kashmir and Ladakh for loans up to INR 50 lakh, plus Aspirational and Identified Credit Deficient Districts. The third is ZED certification.

Here is an illustration at the standard rate. A small manufacturer with no other covered loan borrows INR 1.5 crore. That sits in the INR 1 crore to 2 crore slab, so the first year's fee is 0.85%, or INR 1,27,500. Later years charge the rate on the balance outstanding, so the fee shrinks as you repay.

Ask for the fee as its own line in the sanction letter, and add it to the interest rate when you compare offers. If a year's fee goes unpaid, the trust's liability on that loan lapses, so ask your lender to confirm each payment.

08CGTMSE or CGSS: which guarantee covers your loan?

Founders confuse the two constantly. CGSS, the Credit Guarantee Scheme for Startups, runs through NCGTC for DPIIT-recognised startups and reaches INR 20 crore per borrower. CGTMSE serves micro and small enterprises up to INR 10 crore, and asks for Udyam registration instead of DPIIT recognition.

A facility already covered through NCGTC cannot also be covered by CGTMSE. Cover from DICGC, RBI, the government or an insurer rules CGTMSE out to the extent it already covers the loan.

If you hold DPIIT recognition and are also a micro or small enterprise, either scheme is open to you, loan by loan. CGSS goes higher. CGTMSE needs no DPIIT recognition, and its standard fee starts at 0.37%. Our CGSS guide sets out that scheme's cover and fee, so you can compare the two before your lender picks one.

10Frequently asked questions

Does CGTMSE give money to my business?

No. It pays your lender a share of the amount in default if you fail to repay. What reaches you is the loan itself, sanctioned without property or a third-party guarantee behind it.

Can I apply to CGTMSE directly?

No. You apply to a member lending institution for a loan, and the lender applies to CGTMSE for the cover. Ask at the first meeting whether the bank intends to cover your loan under the scheme.

Can a loan I already have get CGTMSE cover?

Yes, if it is standard and regular and has not been restructured or flagged SMA-2 in the past year. A loan that has already turned into a non-performing asset cannot be covered.

Does collateral-free mean no personal guarantee?

Not necessarily. A guarantee from the proprietor, the partners, the trustees, an HUF's karta and coparceners or a company's promoter directors is not a third-party guarantee under the scheme. A lender may still ask for yours.

Who pays the annual guarantee fee?

The lender pays it to the trust and may recover it from you. The standard rate runs from 0.37% to 1.20% a year, set by your total covered exposure.

General guidance, current as at 15 October 2026. Cover, ceilings and fees change by CGTMSE circular, and every lender applies its own credit policy on top.