The Department for Promotion of Industry and Internal Trade (DPIIT) has notified the establishment of the Credit Guarantee Scheme for Startups that will act as a key enabler and risk mitigation measure for lending institutions and ensure collateral-free funding to startups, the Ministry of Commerce and Industry said on Friday.Under the new scheme, the government will provide credit guarantees to loans extended by Scheduled Commercial Banks, Non-Banking Financial Companies and Securities and Exchange Board of India (SEBI) registered Alternative Investment Funds (AIFs).
The Credit Guarantee Scheme for Startups (CGSS) is aimed at providing credit guarantee up to a specified limit against loans extended by Member Institutions (MIs) to finance eligible borrowers viz.Startups as defined in the Gazette Notification issued by DPIIT and amended from time to time. The credit guarantee cover under the Scheme would be transaction-based and umbrella based.The exposure to individual cases would be capped at Rs 10 crore per case or the actual outstanding credit amount, whichever is less.In respect of transaction-based guarantee cover, the guarantee cover is obtained by the MIs on a single eligible borrower basis. Transaction-based guarantees will promote lending by Banks/ NBFCs to eligible startups.The extent of transaction-based cover will be 80 per cent of the amount in default if the original loan sanction amount is up to Rs 3 crore, 75 per cent of the amount in default if the original loan sanction amount is above Rs 3 crore, and up to Rs 5 crore, and 65 per cent of the amount in default if the original loan sanction amount is above Rs 5 crore (up to Rs 10 crore per borrower), according to an official statement released by the Ministry of Commerce and Industry.