Many Micro, Small and Medium Business Entrepreneurs (MSMEs) may not know and Banks don’t popularize it for obvious reasons. But, Collateral free fund based limit up to a maximum of Rs.100 lacs is available for MSEs.
CGTMSE – Credit Guarantee Fund Trust for Micro and Small Enterprises, guarantees collateral free credit up to a maximum of Rs.100 lacs through banks. I recently got a client of mine sanctioned Rs.75 lacs and I thought I should share it Small Business Entrepreneurs. Eligibility criteria are as follows.
- All manufacturing and Service Companies are eligible. Retail is excluded. Real Estate is Taboo as usual.
- Loan is provided by the banks and CGTMSE guarantees them to a minimum extent of 75% (Maximum 85% over Rs.5.00lacs). So your bank should be an MLI – Member Lending Institution – of CGTMSE. Almost all banks are members and they don’t make a wall poster due to NPA fear!
- All facilities under this scheme should be made available from the same lending institution. If you have a loan from a particular bank, you may have to approach the same bank.
- One important precondition is you should not have any loan secured by a collateral or a third party guarantee or both. If you have it, enhancement is not possible under this scheme. However, a new line of credit can be considered if the banks do not consider it as a composite loan. For example, if you have a working capital loan secured by collateral, there is no bar obtaining a Term Loan under CGTMSE scheme. This however is a grey area. It all depends on the Bank’s interpretation and direct discussion with the banker.
Will you be able to get a loan under this scheme? Assuming, you satisfy the conditions above, only the past conduct of your account can tell. Banks shudder at the thought of NPA and if you are a start up, you can pretty much kiss CGTMSE scheme goodbye. You may be eligible but the Bank’s Manager will not entertain. Understandable. Though the Bank is secured to a minimum extent of 75%, till settlement, it will have to be classified as NPA. Let’s face it. If you were the Bank Manager, you will not take chance. Here are some of the pointers to decide whether you will get the loan under CGTMSE scheme.
- Conduct of your account should be neat. If you kept dishonoring cheques, forget CGTMSE.
- If you already have a collateral free credit, it helps. If you have already availed a priority sector lending without collateral, chances of you getting a CGTMSE credit are high.
- Your balance sheet need not be excellent, but it should be consistent.
- Ask yourself whether you have a tendency for diversion of funds. If yes, CGTMSE is not for you.
A guarantee commission of 1.50% up front will have to be paid. Annual charge is 0.75% of the closing balance as on 31st March needs to be paid. Of course, you will have to pay the regular interest charged by the bank.
If you are approaching bank under CGTMSE scheme, do a bit of home work. Don’t forget, the moment you mention CGTMSE, Banker’s adrenaline will start pumping. Make a compelling case, have a good presentation and your documentation and write up should be impeccable. Good Luck.
Tags: Bank, BankLoan, Business Finance, CGTMSE Scheme, Finance, Loan, Project Finance, Small Business, SMB, SME
Dear sir,
Iwant the details of agri purposed loan up to 50 lakhs .
Thanks Regards,
S.Ragu
Hi Ragu,
Can you be more specific? What do you mean by Agri Purpose? Is it for direct agriculture? Or is it for Agri based projects such as Commercial Cold Storage or Rice Mill? Please send a mail to us (Address in Info page) or you may write a comment here too.
Best Wishes
Dear Srikanth,
Any idea if this scheme is available for software startups ? Any one you know who was successful in achieving that ?
Does bank ask for some kind of primary security from the owners ?
Just curious to get info from a first hand exp person:)
Thanks
Kapil
Hi Kapil,
Technically, yes. But getting loan under CGTMSE scheme for a start up is next to impossible if it is the entrepreneur’s first time venture. In case of a start up with an entrepreneur without a history, we are in effect asking the banker, “Why don’t you finance me Rs.100 lakhs to take care of my burn rate? I might pay you back if my venture is successful!!”. The banker has his pension to worry about and hence they take a safer route and I don’t blame them.
I have obtained a small loan for an IT company which is running successfully. I know of two other companies for whom CGTMSE loan would be a cakewalk but they are interested in VC and take home some money first for their sweat. I don’t blame them either.
Prime Security is obviously there. All the existing and future assets of the company will be secured. Whatever hardware you may be buying will be hypothecated. Depending on facts of the case, some kind of security would be needed. For example, if you are having a deal with a reputed company to provide service on a long term contract, you will most definitely get CGTMSE loan if you can register a power of attorney with the buyer to the effect that, they will pay all your dues to “YourCompany A/C Lending Banker” so that the proceeds land in a place where they can monitor its movement.
So, it all depends. For a software company, there are other options, though. Why don’t you register here http://www.smbenablers.com/form.html You will be sent a link for downloading a ebook compiled by me on finance options for SMEs.
Hope this helps.
Cordially
Srikanth
Thanks Srikanth,
This is so not very startup friendly thing, where a real problem is not availability of funds in market, but the availability of people betting on first time entrepreneurs etc. Thats where I thought Government of India is trying to fill the gap. But as per your explanation it seems , Government of India/Banks are taking up this scheme like many others , for just the sake of planning
Regards
kapil
Unfortunately, Yes. IT startups do not have much help till monetization. I work with a telecom startup – first time entrepreneur. I got him secured over draft for burn rate and we are working on quick monetization. Once this happens and once some kind of growth is shown, things are lot easier.
That said, CGTMSE scheme is really a good one and I know of quite a few worthy recipients. Some of them are my clients. I would suggest, you approach banks under CGTMSE, post monetization and pre VC. It normally works. Major trouble is that bankers do not understand most of the IT products. If you have a plastic parts manufacturing project for 2 crores, you will get CGTMSE loan for 1 crore, if you put in one crore and if you can show a few verifiable purchase commitments. So, all in all it is agood scheme, I would say
Dear sir,
We are going to open new manufacturing unit of absorbent cotton in patenership firm, sir we want loan upto 60 laks, so kindlly give me the details about loan proposal.
with Regards
Nilesh
Hi Nilesh,
Not clear what you need. Without specifics I cannot give you any recommendation. If you want loan proposal format or project report format, you may download them from our resources page here http://smbenablers.com/resources.html
If you have any specific questions you may pst here or send me a mail