Trade Documentation
What Does the CGTMSE Scheme Mean?
The government of India has launched several export promotion schemes to help export businesses compete with international competition. For instance, many banks and financial institutions are encouraged to offer trade finance solutions to small and large exporters to help them with their financing needs.
This article will examine the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), a government initiative. The scheme aims to provide financing options for the hitherto underserved factions of business, such as small, medium, and micro enterprises, to which banks may not offer working capital loans.
What is the Credit Guarantee Fund Trust for Micro and Small Enterprises?
The Credit Guarantee Fund Trust for Micro and Small Enterprises is an initiative by the Indian Government. Under this scheme, the Credit Guarantee Fund Trust for Micro and Small Enterprises will provide loans to micro and small businesses without collateral. Thus, smaller companies can access loans that will help them run their businesses without the need to provide an asset as security or some other form of guarantee.
What are the key features of CGTMSE?
This scheme enables small businesses to continue operating and provides them with funds to help them compete with more prominent players worldwide.
The main features of Credit Guarantee Fund Trust for Micro and Small Enterprises include:
Loans without collateral
Under this scheme, smaller businesses need not provide collateral for properties or assets to take a loan. This feature allows smaller companies to access funds without the added burden of providing collateral.
Guarantee is covered
If the small business fails to make the payments on time or defaults, the Credit Guarantee Fund Trust for Micro and Small Enterprises will cover up to 85% of the loan.
Limit for the loan
The loan amount under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme is at the maximum of INR 5 crores per export unit. The amount is substantial enough for the business owner to keep operations or consider expansion.
Eligibility to borrow
Under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme, micro and small enterprises engaged in businesses like manufacturing, trading, and services can avail of the loan.
Eligibility to lend
Non-banking financial companies, banks, and other financial institutions that have approval from Credit Guarantee Fund Trust for Micro and Small Enterprises will be eligible to lend the amounts.
What is the loan coverage under Credit Guarantee Fund Trust for Micro and Small Enterprises look like?
| Business Type | Maximum loan | Guarantee cover |
|---|---|---|
| Micro enterprises up to INR 10 lakhs | 85% | INR 8.5 lakhs |
| Micro enterprises above INR 10 lakhs | 75% | INR 3.75 lakhs |
| North-east MSEs and MSEs owned by women | 80% | INR 4 crores |
| Other small enterprises | 75% | INR 3.75 crores |
| Businesses in retail and trading sectors | 50% | INR 2.5 crores |
Who can apply for Credit Guarantee Fund Trust for Micro and Small Enterprises?
The categories for application under the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme have been defined as follows:
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Existing or new micro and small enterprises in the services, retail trade, or manufacturing sector can apply for this facility
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Startups that fall under and meet the micro and small enterprises sector criteria can avail of this fund
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Single proprietors, limited liability partnerships, partnerships, and private limited companies fall under the eligibility criteria
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Businesses which have an excellent track record for repaying prior loans can access this facility
Who is not eligible to apply for Credit Guarantee Fund Trust for Micro and Small Enterprises?
- Larger enterprises that do not fall under the definition of small and micro businesses cannot avail of this facility
- Exporters in the agriculture sector will not qualify for this particular facility to avail of funding
- Self-help groups or SHGs cannot avail of this facility
What is the process for applying for Credit Guarantee Fund Trust for Micro and Small Enterprises loans?
In most cases, applying for a business loan is a logical process that includes details of the present financials and future plans.
Here’s the process:
Collate a business plan
This plan should include the loan amount, its purpose, your current financial position, and projections for the future. Ensure that the plan is clear, the details succinct, and the projections realistic.
Identify the NBFC or bank to apply loans for
When you apply for a loan, ensure that the bank or NBFC is a Credit Guarantee Fund Trust for Micro and Small Enterprises participants. This will ensure that you get the benefits of the scheme.
Loan sanction
The bank or financial institution will review the loan application, evaluate whether the applicant qualifies, and adjust the loan amount accordingly before approving it. The financier and the loan applicant will mutually decide on the disbursement of the loan and the repayment schedule.
Guaranteed by Credit Guarantee Fund Trust for Micro and Small Enterprises
The lender will contact the Credit Guarantee Fund Trust for Micro and Small Enterprises to ensure coverage under the scheme for the requisite guarantees.
Disbursal of the loan amount
Once the process is completed, the lender will disburse the amount into the borrower’s account, which they can access.
What are the benefits of Credit Guarantee Fund Trust for Micro and Small Enterprises?
The benefits of this scheme include the following:
- The willingness of banks and NBFCs to lend funds without needing collateral
- It helps new and existing businesses expand and grow their operations and reach
- The risk of default is reduced because of the backing from the government
Keep watching this space for insights and information to help your export business grow. Team LeRemitt is always looking for ways to enhance your business with solutions for trade finance, inward remittance, and document management. Click here to learn more.
