The Government of India has taken a significant step towards enhancing access to capital for startups by expanding the Credit Guarantee Scheme for Startups (CGSS). The maximum guarantee cover per borrower has been doubled from Rs 10 crore to Rs 20 crore, aiming to boost capital mobilisation for early-stage businesses.
Changes in Guarantee Cover
Under the revised scheme, the guarantee cover has been increased to 85% of the defaulted amount for loans up to Rs 10 crore and 75% for loans exceeding Rs 10 crore. This move is expected to reduce the financial risk for lenders, making it more attractive for financial institutions to support innovation-led startups.
Reduction in AGF
Moreover, the Annual Guarantee Fee (AGF) has been slashed from 2% to 1% per annum for startups operating in 27 Champion Sectors identified under the ‘Make in India’ initiative. This reduction aims to make borrowing more appealing in priority areas to drive growth in manufacturing and services.
The expanded CGSS aligns with the government’s vision of fostering a self-reliant, innovation-driven economy. By improving credit flow to startups, the changes enable these businesses to invest in research & development, experimentation, and new technologies, thus fostering growth and innovation in the ecosystem.
The Scheme, initially introduced on October 6, 2022, provides guarantees against credit instruments extended to startups by various financial institutions. It aims to offer collateral-free debt funding for startups through avenues such as working capital, term loans, and venture debt.
With startup funding in India witnessing a decline in recent years, the expanded CGSS comes as a timely support mechanism. According to a report by Wealth 360 One, startup funding dropped by 17% in FY24, with startups raising around $8 billion during the fiscal year.
The modifications and expansions in the CGSS are expected to create a more conducive environment for startups seeking funding support, ultimately propelling India towards becoming a Viksit Bharat—a self-sufficient nation driven by innovation and entrepreneurship.
