In a major policy move, the Government of India has expanded the Credit Guarantee Scheme for Startups (CGSS). The upgrade doubles the guarantee cap and cuts fees to facilitate startup borrowing. The decision is aimed at helping startups access more funds without pledging collateral.
The revised scheme, notified by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry, is a strong step toward improving the credit landscape for startups.
What is CGSS?
Launched on October 6, 2022, the CGSS was created to address one of the biggest challenges startups face—access to debt funding. It offers collateral-free loans to eligible startups via:
- Scheduled Commercial Banks
- All India Financial Institutions (AIFIs)
- Non-Banking Financial Companies (NBFCs)
- SEBI-registered Alternative Investment Funds (AIFs)
The initiative is part of the broader Startup India Mission, launched by Prime Minister Narendra Modi on January 16, 2016.
Why CGSS Matters
Startups often struggle to raise debt due to the absence of assets and financial history. The CGSS steps in as a credit backstop, offering government-backed guarantees for loans. This reduces the risk for lenders and encourages them to support new ventures.
The goal is clear—remove entry barriers to capital, especially for early-stage and innovation-driven startups.
What’s New in the Expanded CGSS?
The latest upgrades align with the proposals made in the Union Budget 2025–26. Here are the key changes:
1. Higher Guarantee Ceiling
- Earlier: ₹10 crore
- Now: ₹20 crore per borrower
This change allows startups to raise double the earlier amount without worrying about collateral.
2. Better Guarantee Coverage
- For loans up to ₹10 crore: The government will guarantee 85% of the defaulted amount.
- For loans above ₹10 crore: The government will cover 75%.
This reassures lenders and encourages them to take a more startup-friendly approach.
3. Lower Annual Guarantee Fee (AGF)
- For startups in 27 Champion Sectors, AGF has been slashed from 2% to 1% per annum.
These Champion Sectors fall under the Make in India initiative and include critical sectors like electronics, semiconductors, medical devices, defense, and renewable energy.
Champion Sectors: A Strategic Focus
The fee reduction benefits startups in sectors considered vital for India’s growth and self-reliance. The idea is to boost innovation in high-priority industries and lower the financial burden on entrepreneurs.
The sectors range across manufacturing and services, ensuring wide applicability. With lower fees, startups in these domains can borrow more affordably and scale faster.
Easing Risk for Lenders
Traditionally, banks and NBFCs hesitate to lend to startups. The expanded CGSS directly tackles this concern. With the government acting as a partial guarantor, financial institutions feel more secure in disbursing credit to new ventures.
This move is expected to:
- Increase debt flow to early-stage startups
- Encourage loans for R&D-heavy projects
- Reduce over-reliance on equity funding and dilution
Startups now have a longer financial runway and better tools to invest in growth
Operational Reforms: Simpler and Smoother
Apart from the financial tweaks, the government has also rolled out operational improvements to make the scheme more startup-friendly:
- Streamlined documentation
- Simplified eligibility criteria
- Faster processing timelines
- Integration with the Startup India portal
These changes aim to cut red tape and reduce procedural delays, making it easier for both startups and lenders to navigate the process.
Boosting Tier 2 and Tier 3 Innovation
The scheme doesn’t just target startups in metro cities. It is designed to extend its benefits to Tier 2 and Tier 3 ecosystems, where access to venture capital is still limited.
By democratizing debt access, the government hopes to unearth more innovation from India’s heartland and nurture regional startup hubs.
Part of the Viksit Bharat Vision
The CGSS expansion aligns with the larger vision of “Viksit Bharat” (Developed India). By improving financial access for startups, the government hopes to:
- Foster technological innovation
- Promote job creation
- Support home-grown entrepreneurs
- Strengthen India’s global competitiveness
It’s a calculated bet on startups as future engines of growth.
What Startups Should Do Now
If you’re a startup looking to raise debt, here’s what you should consider:
- Check if you’re eligible under the Startup India scheme
- Explore funding options with banks, NBFCs, or AIFs participating in CGSS
- If you belong to a Champion Sector, claim the AGF reduction
- Prepare strong business plans and financial projections to boost lender confidence
With the ₹20 crore guarantee cap, startups now have the freedom to plan bigger expansions, invest in tech, and enter new markets with lower financing risks.
A Game-Changer for Startup Funding
The expansion of CGSS is more than just a policy upgrade—it’s a signal. The government is serious about supporting startups through risk-sharing, not just tax breaks or grants.
As more lenders join the scheme and disbursals increase, India’s startup ecosystem could see a fresh wave of debt-financed growth, reducing over-dependence on equity and boosting innovation across sectors.
Final Thoughts
In a country where startups often hit funding roadblocks early on, the revised CGSS offers a clear path forward. It enables smarter risk-taking, encourages experimentation, and ensures more startups can survive long enough to thrive.
As India races toward its Viksit Bharat 2047 goal, empowering startups through better debt access is not just policy—it’s a necessity.
