The Indian Government has revised the credit guarantee scheme for start-ups that will further reduce the perceived risks of lending to them, enabling greater financial support to undertake research and development and creating cutting-edge technologies. The Government approved a revised Credit Guarantee Scheme for Start-ups (CGSS), which increases the ceiling on guarantee cover per borrower from Rs.10 crores to Rs. 20 crores. The broad objective of CGSS is to provide guarantee up to a specified limit against credit instruments extended by member institutions to finance eligible start-ups. This scheme would help provide the much-needed collateral-free debt funding to start-ups. As per the scheme, the extent of guarantee cover has been increased to 85% for loans up to Rs.10 crores and 75% for loans above that. The objective is to finance eligible start-ups, by enabling collateral-free debt funding to start-ups through avenues such as working capital, term loans and venture debt.
Under the plan, the Government had introduced the CGSS on October 6, 2022 to provide guarantee up to a specified limit against credit instruments extended to start-ups by Scheduled Commercial Banks, All India Financial Institutions (AIFI), Non-Banking Financial Companies and Securities & Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs). “Venture debt has become an important element of start-ups’ funding journey. Collateral free debt is almost like a dream for start-ups and helps them to meet initial funding needs without diluting very quickly. CGSS could help many start-ups if the eligibility and process of disbursements are objective,” said Amarjeet Makhija, Partner and Leader – Start-ups, PwC India. The Union Budget 2025-26 had proposed the enhancement of credit availability with guarantee cover for start-ups. Over 1.61 lakh entities have been recognized as start-ups by the Government as of January this year.
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