There is a general notion that market participants—be it retail or institutional—are looking for overnight success. However, building an innovation-driven economy requires consistent long-term support, especially for emerging ventures. In a significant step towards empowering the Indian startup ecosystem, the Department for Promotion of Industry and Internal Trade (DPIIT) has notified a major expansion to the Credit Guarantee Scheme for Startups (CGSS), originally launched in 2022. Here's a breakdown of the latest developments.
The modified CGSS has increased the ceiling on guarantee cover per borrower from ₹10 crore to ₹20 crore. This revision is aimed at enhancing the flow of credit to startups, particularly those with larger capital needs or long gestation periods. The extent of guarantee cover has also been revised:
This change is expected to instil greater confidence among lending institutions, thereby widening the credit funnel for early-stage and growth-stage startups.
To incentivise sector-specific innovation, the Annual Guarantee Fee (AGF) has been slashed from 2% to 1% for startups operating in 27 Champion Sectors identified under the Government's 'Make in India' initiative. These sectors span critical manufacturing and service industries intended to boost self-reliance and global competitiveness.
Lowering the AGF makes the scheme more attractive, reducing the cost of capital for startups in these strategically important sectors, thereby promoting domestic manufacturing and services.
One of the core objectives of the expanded CGSS is to de-risk lending for established financial institutions. By increasing the guarantee coverage, the perceived risk in lending to startups, especially those lacking collateral or revenue history, is substantially reduced. This is expected to bring more banks, NBFCs, All India Financial Institutions (AIFIs), and even SEBI-registered Alternative Investment Funds (AIFs) into the fold, increasing fund availability for startups.
In addition to financial enhancements, several operational reforms have been included following extensive consultations with startup ecosystem stakeholders. These reforms aim to make the scheme more transparent and accessible for both startups and lenders.
By addressing practical challenges in availing of the scheme, the Government is paving the way for smoother execution and broader participation.
The expansion is a continuation of the Government’s Startup India mission launched on 16th January 2016. The broader goal of CGSS is to ensure access to collateral-free debt funding for eligible startups via working capital, term loans, and venture debt.
As proposed in the Union Budget 2025–26, the emphasis on enhanced credit availability is part of a long-term vision to fuel entrepreneurship, catalyse innovation, and create a robust ecosystem where Indian startups can thrive globally.
Read More: SEBI Proposes Key Reforms for Angel Funds to Boost Capital Flow to Start-Ups.
With increased credit coverage, reduced financial burden on key sectors, and broader participation from lending institutions, the revamped CGSS is poised to provide startups with the runway needed for research, experimentation, and innovation. The move not only supports early-stage ventures but also aligns with the ambition to transform India into a self-reliant, innovation-led economy.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks, read all the related documents carefully before investing.
Published on: May 9, 2025, 3:53 PM IST
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