Government Enhances Startup Funding: Credit Guarantee Scheme Expanded

The Government of India has announced substantially expand the Credit Guarantee Scheme for Startups (CGSS). The Department for Promotion of Industry and Internal Trade (DPIIT) has notified a doubling of the maximum guarantee cover per borrower, elevating it from ₹10 crore to ₹20 crore. This decisive move signals the government’s unwavering commitment to empowering early-stage ventures and fostering an innovation-driven economy.

Enhanced Guarantee Coverage: A Safety Net for Lenders

The revised CGSS introduces more favorable terms for lenders, aiming to mitigate their financial risks and encourage greater participation in funding startups. The extent of the guarantee cover has been increased to an impressive 85% of the defaulted amount for loans up to ₹10 crore. The guarantee will stand at a robust 75% for loans exceeding this threshold. By significantly reducing the potential losses for financial institutions, this enhancement is poised to unlock a greater flow of credit to deserving startups that may otherwise struggle to secure funding due to a lack of collateral or established financial track records.

Championing Growth Sectors: Reduced Guarantee Fees

Adding another layer of incentive, the government has slashed the Annual Guarantee Fee (AGF) from 2% to a more palatable 1% per annum for startups operating within the 27 Champion Sectors identified under the ‘Make in India’ initiative. These strategically chosen sectors are pivotal to India’s ambition of becoming a global manufacturing and services hub. This reduction in borrowing costs will make capital more accessible for startups in these priority areas, enabling them to invest more aggressively in research and development, scale their operations, and contribute meaningfully to the nation’s economic progress.

Revitalizing the Startup Funding Landscape

The expansion of the CGSS comes at a crucial juncture. Recent data indicates a decline in startup funding in India, with a reported 17% drop in FY24. This contraction underscores the need for proactive measures to reignite investor confidence and ensure that promising startups have the financial wherewithal to thrive. The enhanced guarantee scheme is expected to act as a catalyst, encouraging financial institutions to extend credit more readily, thereby injecting much-needed capital into the ecosystem. This improved access to funds will empower startups to pursue innovation, experiment with new technologies, and ultimately drive economic growth and job creation.

A Vision for a ‘Viksit Bharat’: Empowering the Next Generation of Businesses

The expanded CGSS is more than just a financial intervention; it reflects the government’s broader vision of transforming India into a self-reliant and innovation-led ‘Viksit Bharat’ (Developed India). By addressing a critical pain point for early-stage businesses – access to capital – the scheme aims to create a more conducive environment for entrepreneurship to flourish. The inclusion of operational reforms and other enabling measures, identified through close consultation with the startup ecosystem, further underscores the government’s commitment to creating a truly supportive framework. By enabling collateral-free debt funding for working capital, term loans, and venture debt, the enhanced CGSS is poised to empower a wider range of startups, propelling India towards its ambitious economic goals.