The credit guarantee scheme for startups.

The Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry has come up with a Credit Guarantee Scheme for Startups (CGSS). This credit guarantee would be applicable on loans extended by Scheduled Commercial Banks (SCBs), Non-Banking Financial Companies (NBFC) and SEBI registered Alternative Investment Funds (AIFs).

 

The credit guarantee is some good news for startups looking for funds. There would be a cap of ₹10 crore per case on the loan amount or the amount of outstanding debt or credit, whichever is less, according to the ministry of commerce and industry. The startups eligible under the scheme are defined in the Gazette Notification issued by DPIIT and amended from time to time.

 

The market analysts are welcoming the step by the government, saying that it is a ‘much-needed intervention’ coming at a time when it was needed the most and will help the startup ecosystem in the country. 

 

“The extent of transaction-based cover will be 80% of the amount in default if the original loan sanction amount is up to ₹3 crore, 75% of the amount in default if the original loan sanction amount is above ₹3 crore, and up to ₹5 crore, and 65% of the amount in default if the original loan sanction amount is above ₹5 crore (up to Rs. 10 crores per borrower),” the ministry notified.

 

Founder & CTO of Trucknetic said, Arham Jain, “Amid the cash crunch, the biggest hurdle that a startup races up and falters against is the funding itself. The hostile response from banks who perceive startups as a high-risk proposition and the endless cycles of pitches to VCs or angel investors can also put off the most determined”.