Many small businesses get turned down for loans because they have no property to pledge. The Credit Guarantee Scheme for Micro and Small Enterprises exists to fix exactly that. This guide explains it in plain English, with links to official sources.
What CGTMSE is
The Ministry of MSME runs the Credit Guarantee Scheme (CGS) through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). It guarantees credit that lenders give to micro and small enterprises (MSEs), including first-generation entrepreneurs, women-led enterprises and units in backward districts, without collateral security or third-party guarantees (PIB).
In simple terms, if a covered loan goes bad, the trust pays the bank a large share of the loss. Because the bank's risk is lower, it can lend without asking you for property.
Two rules that protect small borrowers
- No collateral up to ₹20 lakh. PIB says that under RBI's Master Direction on lending to the MSME sector dated 9 February 2026, all scheduled commercial banks must not accept collateral security for loans up to ₹20 lakh to units in the MSE sector (PIB).
- Guarantee cover above that, up to ₹10 crore. The guarantee ceiling under the scheme went up from ₹5 crore to ₹10 crore from 1 April 2025 (PIB).
Who can use it
The scheme covers term loans and working capital (fund-based and non-fund-based) that a Member Lending Institution gives to a single eligible borrower in the micro and small enterprise sector. Retail and wholesale trading is an eligible activity, and so are educational and training institutions (CGTMSE scheme document).
Member lenders include public sector, private sector and foreign banks, as well as small finance banks, regional rural banks, co-operative banks, state financial institutions and microfinance institutions. The scheme document dated 1 January 2025 set lower caps for some of these lenders (for example ₹200 lakh for small finance banks and RRBs, and ₹50 lakh for MFIs) (CGTMSE scheme document). Limits have changed since, so ask your lender what applies today.
Medium enterprises are not covered, because the scheme is for micro and small enterprises. Check your category on the Udyam portal.
How much of the loan is guaranteed
The guarantee covers a percentage of the loss, not the whole loan. The scheme document dated 1 January 2025 lists these maximum coverage levels (CGTMSE scheme document):
| Borrower category | Maximum coverage |
|---|---|
| Micro enterprises, loans up to ₹5 lakh | 85% |
| Women entrepreneurs; MSEs promoted by Agniveers | 90% |
| SC/ST entrepreneurs, persons with disability, MSEs in aspirational districts, ZED-certified MSEs | 85% |
| MSEs in the North East, J&K and Ladakh (up to ₹50 lakh) | 80% |
| All other borrowers | 75% |
MSEs in RBI's Identified Credit Deficient Districts get an extra 5% coverage, and a 10% discount on the annual guarantee fee (PIB).
Who pays the guarantee fee
The trust charges an annual guarantee fee to the lender. PIB says the standard rate was cut by 50%, to as low as 0.37% a year (PIB). Women, SC/ST and persons with disability get a 10% discount on the fee (CGTMSE scheme document). Some banks pass the fee on to the borrower. Ask before you sign, and get it in writing.
A "hybrid security" option also exists: the bank can take collateral for part of the loan and cover the unsecured part under the scheme (CGTMSE scheme document).
How to ask for a CGTMSE-backed loan
- Get your basics in order: Udyam registration, PAN, GST (if applicable), 6 to 12 months of bank statements and a simple project report or cash-flow estimate.
- Go to your bank branch (or apply online through the bank) and say clearly that you want the loan covered under CGTMSE, without collateral.
- Let the bank assess the loan. The bank decides whether to lend. The trust can also reject a proposal, even one that meets the norms (CGTMSE scheme document).
- Once the loan is sanctioned, the bank applies for the guarantee cover. Ask for the sanction letter to mention it.
- Repay on time. The guarantee protects the bank, not you. You still owe the full loan.
Combining CGTMSE with other schemes
CGTMSE often works alongside subsidy schemes. For example, PMEGP and PMFME are bank-linked, and the bank may cover the loan under CGTMSE (see five central schemes). Women entrepreneurs should also read schemes for women entrepreneurs. Our manufacturing schemes page lists more options.
And remember: you never need an agent to "get CGTMSE". Anyone charging a fee to guarantee a sanction is a red flag (see spotting scams).
Last checked 11 Oct 2026 against the official sources linked in this guide.
Disclaimer: This guide is general information in plain English. It is not legal, tax or financial advice. Scheme rules, limits and portals change, so always check the official source linked above, and talk to your bank or a qualified professional before you apply or bid. OpportunityRaider is independent and is not a government website.
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