CGTMSE – Collateral Free Loan Scheme

CGTMSE – Collateral Free Loan Scheme

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.

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