India enables collateral free funding to startups under CGSS Scheme

India enables collateral free funding to startups under CGSS Scheme

India has given green signal to CGSS Scheme for startups. Under the credit guarantee programme for startups Credit guarantees of up to INR 10 Cr would be offered in exchange for starting loans provided by lending institutions.

The government intends to provide the aforementioned credit guarantee (for startups) under this programme to lending institutions, such as banks, financial institutions, nonbank financial companies, and alternative investment funds (AIFs).

“The broad objective of CGSS is to provide guarantee up to a specified limit against credit instruments extended by member institutions (MIs) to finance eligible startups. This scheme would help provide the much-needed collateral-free debt funding to startups,” the ministry’s notice stated.

The announcement further specified that startups may only apply for loans through the CGSS programme if they were approved by the DPIIT, had earned consistent revenue over the previous 12 months, and were not in default with any lenders or classified as non-performing assets.

Additionally, startups that meet the aforementioned requirements must be approved by lending institutions. The certification in this case will mean that these startups satisfy the CGSS eligibility requirements.

Criteria to qualify for CGSS Scheme for Startups

The following requirements must also be met by lending institutions issuing loans under the CGSS Scheme , according to the notification:

  • – Scheduled commercial banks and financial institutions should be lending banks.
  • – SEBI, a regulatory authority, should register and approve lending AIFs.
  • – Lending NBFCs should be registered with the RBI. It also needs to have BBB ratings from RBI-recognised credit rating agencies and a net worth of up to INR 100 Cr.

In principle, banks listed in the second schedule of the Reserve Bank of India (RBI) Act 1934 are referred to as scheduled commercial banks. The scheduled banks’ list does not include cooperative banks or regional rural banks.