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Government notifies credit guarantee scheme for start-ups

It would provide the much-needed collateral-free debt funding to start-ups

Government notifies credit guarantee scheme for start-ups

Outlook Start-Up Desk

POSTED ON October 07, 2022 2:13 PM

The government has notified the credit guarantee scheme for start-ups to provide them with collateral-free loans up to a specified limit. In a notification, the Department for Promotion of Industry and Internal Trade (DPIIT) said that loan/debt facilities sanctioned to an eligible borrower on or after October 6 would be eligible for coverage under the Scheme.

"The Central Government has approved the 'Credit Guarantee Scheme for Start-ups (CGSS) to provide credit guarantees to loans extended by member institutions (MIs) to finance eligible borrowers being start-ups," it said. It added that this Scheme would help provide much-needed collateral-free debt funding to start-ups.

MIs include financial intermediaries like banks, financial institutions, non-banking financial companies and asset investment funds engaged in lending or investing and conforming to the eligibility criteria approved under the Scheme. It will encompass recognised start-ups that have reached the stage of a stable revenue stream, as assessed from audited monthly statements over a 12-month period, amenable to debt financing.

Start-ups that are not in default to any lending or investing institution and not classified as a non-performing asset as per RBI guidelines are also eligible to avail benefits of this Scheme.

"Maximum guarantee cover per borrower shall not exceed Rs 10 crore. The credit facility being covered here should not have been covered under any other guarantee scheme," the Department said. 

For this Scheme, the Indian government will set up a trust or fund to guarantee payment against default in loans or debt extended to eligible borrowers. The Board of National Credit Guarantee Trustee Company Ltd will manage it as the Trustee of the Fund.

It also said that lending institutions would have to evaluate credit applications by using prudent banking judgement. They shall use their business discretion and due diligence to select commercially viable proposals and conduct the borrowers' accounts with ordinary banking prudence.

These institutions should also have to monitor the borrower account closely. Further, there will be a Management Committee constituted by the DPIIT to oversee the trust's affairs.

The committee will be responsible for reviewing, supervising and monitoring the functioning of the trust. It shall provide necessary guidance to the Trust on broad policy matters related to the Scheme.

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