Government Schemes
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CGTMSE: How to Get a Collateral-Free Business Loan Up to ₹5 Crore
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is not a loan. It is a guarantee scheme run jointly by the Government of India and SIDBI. When a bank gives you a CGTMSE-backed loan, CGTMSE promises to pay 75–85% of the outstanding amount if you default — which means the bank can lend to you without requiring property as collateral.
How the Guarantee Works
Step 1
You apply to a bank
Walk into any empanelled bank and apply for a business loan. Ask the branch to cover it under CGTMSE. The bank decides whether to sanction the loan.
Step 2
Bank applies to CGTMSE
If sanctioned, the bank applies to CGTMSE for a guarantee cover. CGTMSE reviews the application and issues a guarantee to the bank — not to you.
Step 3
You repay — no collateral
You repay the bank normally. No property is pledged. The Annual Guarantee Fee (AGF) is added to your loan cost — the bank pays CGTMSE and recovers it from you.
Guarantee Coverage by Borrower Type
Higher guarantee coverage means the bank takes less risk, making them more willing to lend. Women, SC/ST, micro enterprises, and Northeast borrowers get preferential coverage.
Micro enterprises (loans up to ₹5L)
85% of loan amount
Women borrowers / NE borrowers / SC/ST borrowers
85% of loan amount
MSE in retail trade (loans up to ₹1Cr)
75% of loan amount
General MSE borrowers (loans above ₹5L)
75% of loan amount
Startups with DPIIT recognition
85% of loan amount (up to ₹5Cr)
Annual Guarantee Fee — What It Costs You
The Annual Guarantee Fee (AGF) is charged on the outstanding loan balance each year. It is not a one-time cost — it compounds across the loan tenure. Here is what it looks like in practice.
Loan amount
₹10 lakh
AGF rate (general borrower, Year 1)
1.0% per annum
Annual fee in Year 1
₹10,000 per year (added to your EMI cost)
As the loan reduces
Fee reduces proportionally — if balance is ₹6L by Year 3, the fee is ₹6,000 that year
Women/NE/SC/ST rate
0.75% per annum — lower AGF is one benefit of the scheme for these categories
Total extra cost on a ₹10L loan over 5 years
Roughly ₹35,000–₹40,000 total — a small premium for going collateral-free
Who Qualifies
Enterprise type
Micro and Small Enterprises (MSEs) as defined under the MSME Act. Manufacturing units with investment up to ₹50Cr or service units with investment up to ₹10Cr are classified as small enterprises and are eligible.
Loan size
Up to ₹5 crore per borrower. Loans above ₹5Cr are not covered under CGTMSE.
Purpose
Both term loans (for machinery, equipment, fit-out) and working capital facilities (overdraft, cash credit) are eligible under CGTMSE.
Udyam Registration
Udyam Registration (the MSME registration) is mandatory to access CGTMSE-backed loans. Register free at udyamregistration.gov.in before approaching your bank.
What is NOT eligible
Agricultural and allied activity loans. Educational institutions. Self-help groups (SHGs). Retail trade loans above ₹1 crore. Any loan where the borrower has already pledged collateral.
How to Get a CGTMSE-Backed Loan
- 1
Get your Udyam Registration certificate
Register at udyamregistration.gov.in (free, Aadhaar-based). This certificate is mandatory before any bank will apply for CGTMSE cover on your behalf. It takes under 20 minutes.
- 2
Prepare a loan application and project report
Write a clear project report: business description, revenue history (if any), what you need the loan for, loan amount requested, and repayment plan. The more specific you are about cash flows, the faster the sanction.
- 3
Approach an empanelled bank and ask by name
Walk into any major bank branch and say specifically: "I would like a business loan covered under CGTMSE — I have my Udyam Registration." The magic word is CGTMSE. Branch staff may not proactively offer it; you must ask.
- 4
Bank appraises your application
The bank reviews your financials, CIBIL score, and project viability. They decide the loan amount and tenure independently — CGTMSE only provides the guarantee, not the loan decision.
- 5
Bank applies to CGTMSE for guarantee
After internal sanction, the bank submits a guarantee application to CGTMSE. This is entirely the bank's process — you just wait. CGTMSE typically processes guarantee applications within a few days.
- 6
Loan disbursed, AGF added to your cost
Funds are disbursed to your account. The Annual Guarantee Fee (AGF) is added to your loan cost — either as part of the interest rate or as a separate annual debit. Confirm the total cost with the bank before signing.
Why Applications Get Rejected
No Udyam Registration
This is a hard requirement. Register at udyamregistration.gov.in before approaching the bank. It is free and takes 20 minutes.
Loan amount above ₹5 crore
CGTMSE covers up to ₹5Cr. Larger requirements need a different guarantee mechanism or collateral. Discuss with your bank if you need above this limit.
Collateral already pledged
If you have already pledged property against this loan, CGTMSE cover cannot be applied. CGTMSE is for collateral-free lending only.
Bank declines to apply for CGTMSE cover
A bank can sanction a loan but choose not to apply for CGTMSE cover. This is rare. If a branch refuses, approach a different branch or a different bank. CGTMSE cover is ultimately the bank's decision to apply for.
Poor credit history
CGTMSE reduces the bank's risk, but does not eliminate their credit assessment. A CIBIL score below 650 or existing NPAs will still result in rejection by the lending bank, regardless of CGTMSE.
CGTMSE + Mudra: can they be combined?
Mudra loans (up to ₹10 lakh) are already collateral-free and do not need CGTMSE cover. CGTMSE becomes relevant when your loan requirement exceeds ₹10 lakh — where Mudra stops. For loans between ₹10 lakh and ₹5 crore without collateral, CGTMSE is the right mechanism to use.
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Check Scheme Eligibility →Frequently Asked Questions
Do I apply to CGTMSE directly?
No. You never interact with CGTMSE directly. You apply to a participating bank or NBFC for a business loan and ask them to cover it under the CGTMSE scheme. The lender applies to CGTMSE on your behalf and pays the annual guarantee fee, which is then passed on to you.
What is the annual guarantee fee and how much will I pay?
The Annual Guarantee Fee (AGF) ranges from 0.75% to 1.35% of the loan amount per year depending on loan size and borrower category. On a ₹10 lakh loan, you would pay roughly ₹7,500 to ₹13,500 per year as an additional cost on top of the interest rate. Women and NE borrowers get a lower rate.
Does CGTMSE cover mean absolutely no collateral?
Yes — CGTMSE-backed loans do not require you to pledge property, machinery, or any other asset as security. The guarantee itself replaces collateral. However, some lenders may still ask for a personal guarantee (not property) — this is not a CGTMSE requirement, it is the lender's own add-on condition.
Which banks offer CGTMSE-backed loans?
All scheduled commercial banks (SBI, PNB, Bank of Baroda, Canara Bank, HDFC, ICICI, Axis, and others), regional rural banks, small finance banks, and select NBFCs are empanelled with CGTMSE. A full list is on the CGTMSE website at cgtmse.in.
Can I get a CGTMSE loan if I already have a Mudra Loan?
Yes, if your Mudra loan is in good standing. CGTMSE is typically used for larger loan requirements (above ₹10 lakh and up to ₹5 crore) that Mudra does not cover. Having an active Mudra loan with a clean repayment record actually strengthens your CGTMSE application.
What happens if I default on a CGTMSE-backed loan?
CGTMSE pays the bank 75–85% of the outstanding loan amount. This protects the bank. However, CGTMSE then has the right to recover that amount from you. Defaulting on a CGTMSE-covered loan will damage your CIBIL score, result in legal recovery proceedings, and permanently block you from any future scheme access.
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