The government has doubled the ceiling on guarantee cover under the Credit Guarantee Scheme for Startups (CGSS) to Rs 20 crore per borrower and also increase the guarantee cover. In some select sector the guarantee fee has also been halved.
The increase in the cover was notified by the Department for Promotion of Industry and Internal Trade (DPIIT)
The extent of guarantee cover provided has also been increased to 85% of the amount in default for loan amount up to Rs. 10 crore and 75% of the amount in default for loan amount exceeding Rs. 10 crore, a statement said here.
Additionally to boost domestic manufacturing and self-reliance the Annual Guarantee Fee (AGF) for startups in 27 Champion Sectors under the Make in India programme has been reduced to 1% per annum from 2% per annum.
The reduction in AGF for Champion Sectors will make funding more attractive for the identified sectors and boost innovation in domestic manufacturing and self-reliance.
Of the 27 champion sectors 15 are in manufacturing and the rest 12 in services. In manufacturing the champion sectors include aerospace and defence, automotive and auto components, pharmaceuticals and medical devices, bio-technology, chemicals and petrochemicals, electronics system design and manufacturing.
In services the sectors covered include Information Technology & Information Technology enabled Services (IT &ITeS), tourism and hospitality, medical value travel, accounting and finance Services, and audio visual Services.
“As a result of the increased guarantee support and coverage, the number of financial institutions coming forward to provide credit support to startups shall increase, thereby increasing overall fund flow for startups,” the statement said.
The expanded Scheme will further reduce the perceived risks associated with lending to startups in established financial institutions, enabling greater financial flow and runway for startups to undertake research and development (R&D), experimentation, and create cutting-edge innovation and technologies.
The government launched the Startup India initiative along with an Action Plan for Startups on 16th January 2016. In line with the Action Plan for startups, the Government had approved and notified the CGSS in October 2022. The broad objective of CGSS is to finance eligible startups, by enabling collateral free debt funding to startups through avenues such as working capital, term loans, and venture debt.