For most small businesses the hardest part of a bank loan is not the interest rate but the collateral. A manufacturer renting its shed, a trader with no property in the firm's name or a first-generation entrepreneur often has nothing to mortgage. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), set up by the Government of India and SIDBI, exists to close that gap. The MSME Ministry says it has approved over 1.18 crore guarantees worth ₹9.80 lakh crore since the scheme began in 2000.
How it works
The bank lends to a micro or small enterprise without collateral or third-party guarantees. It pays CGTMSE an annual fee and gets a guarantee: if the loan turns into a non-performing asset, the Trust pays the bank an agreed share of the amount in default. Because the bank's loss is capped, it can lend on the strength of your business and cash flows rather than your property.
Three points are often misunderstood:
- You still owe 100% of the loan. The guarantee protects the lender. After paying a claim, the Trust expects the bank to keep recovering from you, and defaulters' names can be listed on the Trust's website.
- Promoters' personal guarantees are allowed. The scheme bars third-party guarantees, but the guarantee of the proprietor, partners, trustees or promoter directors is not treated as third-party.
- It is at the lender's option. No rule forces a bank to use CGTMSE, and the Trust can reject a proposal.
How much it covers
Maximum credit covered per borrower (fund and non-fund based together):
| Lender | Ceiling |
|---|---|
| Public sector, private and foreign banks, select financial institutions | ₹10 crore |
| Small finance banks, RRBs, co-operative banks, state financial institutions | ₹200 lakh |
| Microfinance institutions | ₹50 lakh |
| NBFCs (separate CGS-II scheme) | ₹500 lakh |
The bank ceiling was raised from ₹5 crore to ₹10 crore for guarantees approved on or after 1 April 2025. The cap applies to your total covered exposure, even if it is split across several lenders.
Extent of cover for guarantees approved on or after 1 April 2025:
| Borrower | Up to ₹5 lakh | ₹5 lakh to ₹50 lakh | ₹50 lakh to ₹10 crore |
|---|---|---|---|
| Micro enterprises | 85% | 75% | 75% |
| MSEs in the North East, J&K and Ladakh | 80% | 80% | 75% |
| Women entrepreneurs, MSEs promoted by Agniveers | 90% | 90% | 90% |
| SC/ST entrepreneurs, persons with disability, aspirational districts, ZED-certified MSEs, transgender entrepreneurs | 85% | 85% | 85% |
| All others | 75% | 75% | 75% |
MSEs in RBI's Identified Credit Deficient Districts get 5 percentage points more. Trading activity and educational or training institutions are also eligible on the same terms.
What it costs: the annual guarantee fee
| Credit facility | Standard rate a year |
|---|---|
| Up to ₹10 lakh | 0.37% |
| ₹10 lakh to ₹50 lakh | 0.55% |
| ₹50 lakh to ₹1 crore | 0.60% |
| ₹1 crore to ₹2 crore | 0.85% |
| ₹2 crore to ₹5 crore | 1.00% |
| ₹5 crore to ₹8 crore | 1.10% |
| ₹8 crore to ₹10 crore | 1.20% |
- The fee is charged on the guaranteed amount in the first year and on the outstanding after that. The slab is decided by your total CGTMSE exposure.
- Concessions of 10% each apply for women, SC/ST, PwD, Agniveer and transgender entrepreneurs; units in the North East (up to ₹50 lakh), aspirational districts or credit-deficient districts; and ZED-certified units, up to 30% in all.
- Each lender pays a rate adjusted for its own portfolio: a 10% discount for the best, and a risk premium of up to 70% for the riskiest.
- The fee demanded includes GST, and the lender may recover it from you at its discretion.
Worked example
A small manufacturer (not in a special category) gets a ₹2 crore collateral-free working capital limit from a public sector bank.
- First-year fee at the standard 0.85%: ₹1,70,000, which the bank may pass on. A woman-owned unit would get a 10% concession (0.765%, or ₹1,53,000) and 90% cover instead of 75%.
- If the account defaults with ₹1.6 crore due, the guaranteed amount is 75% of that, ₹1.2 crore. CGTMSE pays the bank 75% of it (₹90 lakh) first and the balance later. The business still owes the full ₹1.6 crore.
Compare the fee with what you would otherwise give up: mortgaging a property that could back a loan against property or a project loan, or a cash margin locked in a fixed deposit. For many MSEs, 0.37% to 1.20% a year is cheaper.
Who is eligible
- Borrower: a new or existing micro or small enterprise in manufacturing, services or trading. From 1 April 2025 a micro enterprise has investment up to ₹2.5 crore and turnover up to ₹10 crore; a small enterprise up to ₹25 crore and ₹100 crore. The MSMED (Amendment) Act, 2026 moves these thresholds to central government notifications, so check the current limits on your Udyam certificate (see our MSME delayed payments guide).
- Facility: term loans and working capital, including non-fund based limits such as bank guarantees and letters of credit (see what a bank guarantee really costs).
- Lender: a member lending institution registered with CGTMSE.
What CGTMSE does not do
- Not for secured loans. A facility backed by collateral or a third-party guarantee is not covered, except that under the hybrid security option the bank can take collateral for part of the loan and cover the unsecured part with CGTMSE, up to ₹10 crore in all.
- Not for weak accounts. The facility must be standard on the date the fee is paid, and a loan restructured or in SMA-2 in the past year cannot be newly covered. A loan that turns NPA within 90 days of that date is not eligible for a claim.
- Not for proposals below investment grade above ₹50 lakh. Larger proposals must be internally rated investment grade by the lender.
- Not double cover. Loans already covered by another government guarantee scheme, NCGTC or an insurer are excluded.
- Cover period. For term loans it runs for the agreed tenure plus four months; for working capital, in blocks of five years that can be renewed.
RBI's collateral-free limit is separate
Even without CGTMSE, RBI's rules bar banks from taking collateral on loans to micro and small enterprises up to ₹20 lakh sanctioned or renewed from 1 April 2026, and let them waive collateral up to ₹25 lakh for units with a good track record. CGTMSE is what lets a bank go beyond that, up to ₹10 crore.
Recent additions
CGTMSE has added special provisions for export credit (February 2026), a Micro Credit Card for micro enterprises (March 2026) and credit facilities on TReDS (June 2026). Ask your bank whether these apply to your case.
How to ask your bank for CGTMSE cover
- Get Udyam registration and keep it updated.
- Prepare a bankable file: GST returns, financial statements, bank statements and, for term loans, a project report showing that cash flows cover repayment. Our DSCR calculator helps.
- Ask the question early, before the bank asks for property: "Can this limit be covered under CGTMSE?" Mention any category that raises cover or lowers the fee.
- Ask who pays the fee and how it appears in your sanction letter.
- If you do have some property, ask about the hybrid option rather than mortgaging everything.
- Pay on time. An account that slips into SMA or NPA makes later cover harder to get.
How Biz Corp Solutions helps
We help micro and small enterprises prepare a lender-ready file and approach banks, NBFCs and financial institutions for collateral-free or partly secured working capital, term loans and guarantee limits under CGTMSE. See our working capital and project funding services.
This article is based on the CGTMSE scheme document updated as on 1 April 2026, CGTMSE circulars and RBI and MSME Ministry announcements up to 21 October 2026. Whether a loan is covered, and on what terms, is decided by the lender and CGTMSE.