Wednesday, June 23, 2021

Try CGTMSE scheme for a credit facility

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All business demands consistent cash flow to maximize their growth possibilities. One of the most prominent barriers faced by micro, small and medium enterprises (MSMEs) is that it is challenging to get business loans from regular moneylenders due to scarcity of collateral and other assets. Without proper funding, MSMEs are unable to expand and grow.

Recognizing the critical role of MSMEs in the economy, the government of India has begun an innovative scheme like the Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE).

Here, in this article, we offer you insights on what is CGTMSE, how to apply, and its eligibility criteria.

What is the CGTMSE Scheme?

Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) is a scheme launched by the Government of India, Ministry of Medium, Small and Micro Enterprises (MSME), and Small Industries Development Bank of India (SIDBI) collectively in 2000, focusing on various MSMEs.

The prime purpose of this scheme is to provide term loans and working capital loans up to 200 lakhs to the borrowers, even when they don’t have collateral or security. 

 

CGTMSE also grants credit guarantees to financial institutions that provide loans to MSMEs. If a borrower defaults on a payment, the CGTMSE trust fund will take care of the guarantee cover in the ratio of 50/75/80/85 percent of the acquired amount.

Who is eligible for CGTMSE?

Lenders: Mostly all commercial banks and specified regional rural banks including NSIC, SIDBI, and NEFDi can be eligible as lending institutions. 

The institutions that enter into an agreement with CGTMSE are Member Lending Institutions (MLIs).On May 31, 2016, 133 suitable Lending Institutions were launched as MLIs of the Trust.

Borrowers: All the existing and new MSMEs can apply for CGTMSE under the following conditions:

  • CGTMSE provides a maximum of 4crore of guarantee cover for the credit amount up to 5Cr.
  • In the case of micro-enterprises, the maximum limit for guarantee cover is up to 1.5Cr for credit facilities ranging from 50 lakh to 2 crores.
  • ·Small and micro-enterprises run by women are eligible for a guarantee cover of 80%.

The following organizations are not suitable for the loan under the CGTMSE scheme:

  • Retail Trade
  • Self Help Groups (SHG)
  • Training Institutes
  • Educational Institutions
  • Agriculture

How to apply for the CGTMSE loan scheme?

  1. Formation of a Business Plan: The first step is to prepare a business plan including all the relevant information of the business, like the nature of the business, the requirement of funds, return on investments, payback periods, and other financial details of the business and its feasibility.
  2. Approach an eligible Lender: The next step is to submit your business plan report to the lender and also Submit the CGTMSE business loan application form to the lender. 
  3. The sanction for Bank Loan: once the request for a loan application has been made, the lending institutions analyze the business model and finally grant the loan if they meet the eligibility criteria.
  4. Obtaining the Guarantee Cover:  Now the lender applies for the guarantee cover from the CGTMSE authority. Once the CGTMSE approves the loan, it also provides the guarantee cover to the banks /lenders.
  5. Transaction of funds: After the approval, the banker issues the eligible amount and the borrower will bear a CGTMSE guarantee and service fee.

CGTMSE fee and charges:

A borrower needs to pay 1% per annum of the total amount to the lender as the service fee.

  1. 0.75% for a loan of Rs 5 lakh and less.
  2. 0.85% for a loan over Rs 5 lakh till Rs 100 lakh.

The tenure of the guarantee is for 5 years.

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