Capital Unleashed: Government's CGSS Expansion Gives Startups a ₹20 Crore Boost

Image Source: KNN India

The Government of India has officially expanded the Credit Guarantee Scheme for Startups (CGSS), significantly enhancing access to capital for the country’s burgeoning startup ecosystem. The Department for Promotion of Industry and Internal Trade (DPIIT) announced that the scheme will now provide a higher guarantee cover, reduced fees for key sectors, and broader support for early-stage, innovation-driven enterprises, aligning with the Union Budget 2025–26 and the government’s vision for a self-reliant, innovation-led economy.

Major Changes in the CGSS Expansion

Increased Guarantee Cover
The maximum guarantee cover for each borrower has been doubled to ₹20 crore from ₹10 crore.
For loans of up to ₹10 crore, the guarantee now covers 85% of the defaulted amount; for loans over ₹10 crore, it covers 75%.

Reduced Annual Guarantee Fee (AGF)

For 27 Champion Sectors (listed under 'Make in India'), the AGF has been reduced from 2% to 1% annually.
This cut is intended to make funding more appealing and accessible for priority sectors, enhancing manufacturing and services.

Objectives and Significance

Catalyzing Innovation and Capital Mobilization

The growth is intended to fill financing gaps for early-stage and high-risk startups, incentivizing lenders to join in by lowering their risk exposure.

By providing collateral-free loans, the scheme reduces the hurdles for startups in obtaining much-needed debt funding.

Facilitating India's Startup and Innovation Ecosystem

The action is likely to boost the number of financial institutions that can lend to startups, thus improving overall fund flow and aiding research, development, and innovation.
The scheme fits the government's overall objectives of building self-reliance, encouraging domestic manufacturing, and making India an international hub for innovation.

Eligibility and Implementation

Who Can Avail?

Startups identified by DPIIT, and not in default or NPAs, can be covered under the scheme.
Member Institutions (MIs) like Scheduled Commercial Banks, All India Financial Institutions, eligible NBFCs, and SEBI-registrated Alternative Investment Funds may provide credit under the scheme.

Types of Credit Instruments Covered

The scheme is applicable to various debt instruments, such as working capital, term loans, and venture debt, all collateral-free.

Operational Details

The new scheme takes effect from the date of notification (May 8, 2025) and replaces the previous 2022 notification.
A Management Committee will administer the implementation of the scheme and can modify parameters when necessary.

Impact on the Startup Ecosystem

The increased guarantee and lower fees are likely to:
Promote higher lender participation.
Enable more diversified and inclusive financing for startups, particularly in emerging and high-growth industries.
Lessen financial hurdles and facilitate the development of a thriving, innovation-based startup landscape in India.

Sources:: Business Standard, Economic Times CFO, Adda247 Current Affairs, TaxGuru, InsightsonIndia, Apparel Resources, Retail Economic Times