The Indian government has taken a significant step to boost funding and research and development (R&D) activities in the startup ecosystem by revising the credit guarantee scheme. The move aims to reduce perceived risks for lenders, facilitating greater financial support for startups to innovate and create cutting-edge technologies.
Revised Credit Guarantee Scheme
The revised Credit Guarantee Scheme for Startups (CGSS) approved by the government raises the guarantee cover per borrower from Rs 10 crore to Rs 20 crore. This enhancement is set to provide a crucial support system for startups seeking collateral-free debt funding, enabling them to access the necessary financial resources to grow and scale.
Key Features of the Scheme
Under the CGSS, the guarantee cover has been increased to 85% for loans up to Rs 10 crore and 75% for loans exceeding that amount. This move is designed to facilitate funding for startups through various avenues such as working capital, term loans, and venture debt, empowering them to meet their financial requirements without the immediate need for collateral.
The government introduced the CGSS on October 6, 2022, with the aim of providing guarantees against credit instruments extended to startups by Scheduled Commercial Banks, All India Financial Institutions, Non-Banking Financial Companies, and SEBI-registered Alternative Investment Funds.
Amarjeet Makhija, Partner and Leader – Startups at PwC India, highlighted the significance of collateral-free debt funding for startups, emphasizing that it can help them secure initial funding without rapid dilution. The Union Budget 2025-26 had already proposed enhancing credit availability with guarantee cover for startups, recognizing over 1.61 lakh entities as startups by January this year.
This revision in the credit guarantee scheme is expected to provide a substantial boost to the startup ecosystem in India, enabling more entrepreneurs to access the necessary financial support to drive innovation and technological advancements.
