The figures below are from the CGTMSE scheme document updated as on 1 April 2025. Check the CGTMSE website for anything newer before you rely on them.
CGTMSE does not lend you money, and it is not a subsidy. It guarantees part of a loan that your bank gives you, so that the bank can lend to a micro or small enterprise without asking for property as collateral.
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was set up by the Government of India and SIDBI. We wrote a short introduction earlier. This is the detailed version: what the scheme covers, what "collateral-free" means in practice, and what it costs.
If the loan goes bad, CGTMSE pays the bank a share of the loss. It does not write off your debt. The bank must still try to recover the full amount from you.
What CGTMSE covers
The scheme covers term loans and working capital, both fund-based and non-fund-based (such as bank guarantees and letters of credit), given to new or existing micro and small enterprises. Retail and wholesale trade, and educational and training institutions, are eligible activities.
Medium enterprises are not covered. Since 1 April 2025 a micro enterprise has investment up to ₹2.5 crore and turnover up to ₹10 crore, and a small enterprise has investment up to ₹25 crore and turnover up to ₹100 crore.
The maximum credit facility covered for one borrower depends on the lender:
| Type of lender | Maximum credit facility covered |
|---|---|
| Public sector, private and foreign banks, and select financial institutions | ₹10 crore |
| Small finance banks, regional rural banks, state financial institutions, urban co-operative banks, and state and district central co-operative banks | ₹2 crore |
| Microfinance institutions | ₹50 lakh |
The ₹10 crore cap applies to a borrower's total outstanding facilities, so you can take further covered credit as the outstanding amount reduces.
What "collateral-free" really means
- No collateral security and no third-party guarantee. The bank cannot ask for property or for a guarantee from an outsider. But the scheme does not count the proprietor, partners, karta, trustees or promoter-directors as third parties, so your bank can still ask for a personal guarantee from the people who run the business.
- The bank still takes primary security. That means the assets the loan pays for, such as machinery, stock or receivables. A loan sanctioned with no primary security at all is not eligible for cover.
- Part-collateral is allowed. Under the hybrid model the bank can take collateral for part of the loan, and the unsecured remainder, up to ₹10 crore overall, can be covered.
- The bank's decision comes first. CGTMSE can accept or reject any proposal the bank sends. The bank still has to be satisfied that your business is viable.
How much of the loan is covered?
For guarantees approved on or after 1 April 2025, the scheme sets the maximum extent of cover between 75% and 90%, depending on the borrower's category and the size of the loan. MSEs in credit-deficient districts identified by the RBI get an extra 5 percentage points. For loans above ₹50 lakh, the bank must rate the borrower internally, and the rating must be investment grade.
Because cover is capped below 100%, the bank still carries part of the risk. That is why it will still appraise your project closely.
For a term loan the cover runs for the loan tenure. For a working capital limit on its own, it runs in blocks of five years and can be renewed.
What does it cost?
The Annual Guarantee Fee (AGF) is paid to CGTMSE by the lending institution. Ask your bank whether and how it recovers the fee from you. The standard rates for guarantees approved or renewed on or after 1 April 2025 are:
| Credit facility | Standard annual guarantee fee |
|---|---|
| Up to ₹10 lakh | 0.37% |
| Above ₹10 lakh and up to ₹50 lakh | 0.55% |
| Above ₹50 lakh and up to ₹1 crore | 0.60% |
| Above ₹1 crore and up to ₹2 crore | 0.85% |
| Above ₹2 crore and up to ₹5 crore | 1.00% |
| Above ₹5 crore and up to ₹8 crore | 1.10% |
| Above ₹8 crore and up to ₹10 crore | 1.20% |
- The fee is charged on the guaranteed amount in the first year and on the outstanding amount in the years after.
- The fee the Trust demands includes GST.
- A 10% concession applies to women, SC/ST and transgender entrepreneurs, persons with disability, MSEs promoted by Agniveers, units in the North East (up to ₹50 lakh), units in aspirational and credit-deficient districts, and ZED-certified MSEs. An MSE that qualifies under all three groups (social, geographic and MSE status) gets a maximum of 30%.
- Lenders with a weaker claims record pay a risk premium of up to 70% on the standard rate.
How to get it
You do not apply to CGTMSE yourself. The bank applies for cover once it has agreed to lend.
- Confirm that your business counts as a micro or small enterprise, and have your Udyam registration ready.
- Prepare a project report and, for working capital, CMA data. A clear set of numbers is what gets a bank to say yes.
- Apply for the loan at a bank that is a member lending institution of CGTMSE, and ask at the start whether it will seek cover.
- Read the sanction letter. Check whether the loan is under CGTMSE cover, what primary security is taken, and whether a personal guarantee is required.
Common misunderstandings
- "CGTMSE will give me a loan." It does not. Your bank does.
- "There will be no security at all." The bank still takes primary security, and it can ask for a personal guarantee.
- "The bank has to approve me." It does not. CGTMSE only makes the bank more willing to lend.
- "The guarantee clears my debt if the business fails." It protects the bank. You still owe the money.
We prepare project reports and CMA data and help with bank applications. See our subsidy and scheme services, or message us on WhatsApp.