CGTMSE is a credit guarantee mechanism that helps eligible lenders extend credit to micro and small enterprises without conventional collateral or third-party guarantees, subject to scheme conditions. CGTMSE does not directly lend money or provide a subsidy to borrowers.
1. How the CGTMSE process works
- The business approaches a bank or other registered Member Lending Institution (MLI).
- The lender evaluates the business and decides whether to sanction an eligible term loan or working capital facility.
- The lender applies to CGTMSE for guarantee cover under the applicable scheme.
- The guarantee is issued subject to scheme conditions and payment of applicable fees.
Borrowers should deal with the lender, not with people claiming to sell a direct CGTMSE loan.
2. Maximum eligible credit and guarantee coverage
CGTMSE's official scheme information states that eligible credit facilities up to ₹10 crore per borrower may be covered, subject to eligibility and terms. This is a credit-facility ceiling, not a promise that a borrower will receive ₹10 crore, and the trust does not necessarily guarantee 100% of a lender's exposure.
The Hybrid Security arrangement can allow collateral for one portion of a facility while eligible uncovered credit is considered for guarantee coverage, subject to scheme conditions.
3. Annual guarantee fee: published standard rates
For guarantees approved or renewed on or after 1 April 2025, CGTMSE publishes the following standard annual guarantee fee (AGF) slabs. Rates are percentages per annum and can be adjusted for eligible concessions and MLI-specific risk factors.
| Credit facility slab | Standard AGF (p.a.) |
|---|---|
| Up to ₹10 lakh | 0.37% |
| Above ₹10 lakh to ₹50 lakh | 0.55% |
| Above ₹50 lakh to ₹1 crore | 0.60% |
| Above ₹1 crore to ₹2 crore | 0.85% |
| Above ₹2 crore to ₹5 crore | 1.00% |
| Above ₹5 crore to ₹8 crore | 1.10% |
| Above ₹8 crore to ₹10 crore | 1.20% |
CGTMSE states that the first year's AGF is charged on the guaranteed amount, and subsequent years on the outstanding amount. The MLI decides whether to pass the fee to the borrower. Confirm the actual fee, taxes and any concessions with the lender.
4. What collateral-free really means
A CGTMSE-backed loan does not mean that the borrower has no repayment obligation or that the lender waives credit appraisal. Primary security over assets financed or current assets may still be relevant. Eligibility, permitted guarantees and security conditions depend on the scheme and product.
Example: A small engineering unit seeking ₹35 lakh for machinery can ask an MLI whether the proposed loan qualifies for CGTMSE cover. The bank will still assess profitability, repayment capacity, promoter contribution and project viability.
5. Questions to ask your bank
- Is the proposed loan eligible for CGTMSE coverage?
- What portion of the facility is covered, and which scheme variant applies?
- What AGF and other charges will the borrower bear?
- Is any collateral or third-party guarantee proposed, and why?
- What documents and financial projections are needed?
Review our MSME loan document checklist and EMI calculator.
Frequently asked questions
Can I apply directly to CGTMSE for a loan?
No. Apply through a participating Member Lending Institution.
Is CGTMSE a government subsidy?
No. It is a credit guarantee arrangement; the borrower must repay the lender.
Does CGTMSE guarantee loan approval?
No. The lender independently evaluates and sanctions the loan.
Official references
Check the current scheme and bank terms before applying. This independent guide is not an official government or lender website.
Disclaimer: Educational information, not loan advice, approval or an offer of finance. Terms, policies and regulatory instructions can change.