Quick summary: CGTMSE guarantees bank loans given to micro and small enterprises without collateral. Since April 1, 2025, loans of up to ₹10 crore per borrower can be covered, with the guarantee paying the lender 75% to 90% of the loss if the loan goes bad. You don’t apply to CGTMSE directly. You apply for a loan at a bank, and the bank takes the guarantee.
Ask a bank for a business loan without property to pledge, and the conversation usually ends quickly. CGTMSE exists to change that conversation. The bank carries less risk because most of any default is guaranteed, so it can lend against the strength of the business instead of the value of your house.
What is CGTMSE?
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a trust set up by the Ministry of MSME and SIDBI. Its guarantee scheme has been running since June 1, 2000.
The idea is simple. A bank lends to a micro or small enterprise without asking for collateral or a third-party guarantee. CGTMSE guarantees a large share of that loan. If the borrower defaults, the bank claims the guaranteed share from the trust. The borrower still owes the full amount, but the bank’s risk is much smaller, which is what makes it willing to lend.
Key numbers at a glance
| Feature | Current position |
|---|---|
| Maximum loan covered | ₹10 crore per borrower, for guarantees approved on or after April 1, 2025 (₹5 crore before that, and ₹2 crore before April 2023) |
| Share of the loan guaranteed | 75% to 90%, depending on loan size and borrower category |
| Annual guarantee fee | 0.37% to 1.20% a year, depending on the loan amount |
| Collateral | None required. Partial collateral is allowed, with the unsecured part covered |
| Who qualifies | New and existing micro and small enterprises |
| Cover period | The full term for term loans; blocks of 5 years for working capital |
Who is eligible
The scheme covers micro and small enterprises only. Medium enterprises are outside it. Both new and existing businesses qualify, across manufacturing, services, retail and wholesale trade, and educational or training institutions.
Your classification comes from your investment and turnover, and your Udyam certificate is how a lender confirms it. A micro enterprise can have up to ₹2.5 crore of investment and ₹10 crore of turnover. A small enterprise can have up to ₹25 crore and ₹100 crore. Our guide to Micro, Small and Medium classification explains how both limits work together.
How much of the loan is guaranteed
Coverage ranges from 75% to 90% of the amount in default. Where you sit in that range depends on two things: the size of the loan and who you are.
- Smaller loans to micro enterprises get higher coverage than large loans.
- Women entrepreneurs, SC/ST entrepreneurs, persons with disabilities, transgender entrepreneurs, businesses promoted by Agniveers, units in the North East, Jammu & Kashmir and Ladakh, units in aspirational districts, and ZED-certified businesses get higher coverage tiers.
- Businesses in districts the RBI has identified as credit-deficient get an extra 5% on top of their normal coverage.
- All other borrowers get 75%.
For loans above ₹50 lakh, the bank must rate the proposal internally, and it has to be of investment grade to be covered.
What it costs: the annual guarantee fee
The guarantee isn’t free. CGTMSE charges an annual guarantee fee (AGF), calculated on the guaranteed amount in the first year and on the outstanding amount after that. Lenders often pass this fee on to the borrower, so ask about it when you compare loan offers.
| Loan amount | Standard annual fee |
|---|---|
| Up to ₹10 lakh | 0.37% |
| ₹10 lakh to ₹50 lakh | 0.55% |
| ₹50 lakh to ₹1 crore | 0.60% |
| ₹1 crore to ₹2 crore | 0.85% |
| ₹2 crore to ₹5 crore | 1.00% |
| ₹5 crore to ₹8 crore | 1.10% |
| ₹8 crore to ₹10 crore | 1.20% |
These are the standard rates for guarantees approved from April 1, 2025. Lenders with a weaker track record on bad loans are charged a risk premium on top, so the rate can be higher depending on which bank you borrow from.
How to get a CGTMSE-backed loan
There’s no separate CGTMSE application for the business owner. The guarantee is arranged by the lender.
- Get your Udyam certificate in place. The lender will use it to confirm you’re a micro or small enterprise.
- Approach a member lending institution. Most public and private sector banks take part, along with select financial institutions, small finance banks and some NBFCs.
- Apply for the loan and ask for CGTMSE cover. Bring your business plan or financials, bank statements, and KYC for the business and its promoters.
- The bank assesses the loan and applies for the guarantee. If it approves the loan, it registers the guarantee with CGTMSE and the fee becomes payable.
The guarantee doesn’t guarantee approval. The bank still decides whether to lend, based on your repayment capacity and credit history. Our explainer on how banks verify MSME data before loan approval covers what they look at.
Common misunderstandings
“CGTMSE gives the loan.” It doesn’t. The bank lends the money, and CGTMSE only guarantees part of it.
“The guarantee means I don’t have to repay if things go wrong.” You owe the full loan regardless. The guarantee protects the bank, not the borrower, and a default still damages your credit record.
“Any MSME can use it.” Only micro and small enterprises qualify. Once a business moves into the Medium bracket, new loans can’t be covered.
Frequently asked questions
What is the maximum loan covered under CGTMSE? ₹10 crore per borrower, for guarantees approved on or after April 1, 2025. The limit was ₹5 crore before that.
Do I need collateral for a CGTMSE loan? No. The scheme covers loans given without collateral or a third-party guarantee. Where a lender takes partial collateral, the unsecured part can still be covered.
Can medium enterprises get CGTMSE cover? No. The scheme is only for micro and small enterprises.
Who pays the CGTMSE fee? The fee is charged to the lender, which often passes it on to the borrower. Standard rates run from 0.37% to 1.20% a year, depending on the loan amount.
Do I need a Udyam certificate for a CGTMSE loan? The lender needs to confirm that you’re a micro or small enterprise, and the Udyam certificate is the standard proof. Get it in place before you apply.
If you need collateral-free working capital on a smaller scale, the ₹5 lakh ME-Card for micro enterprises is worth a look too, and our guide to collateral-free loans for small businesses compares the wider options.
Related: collateral-free loans for small business, schemes open to Udyam holders.
Looking for Udyam Registration? Apply online today with expert assistance from Provelty Enterprises — quick, simple, and fully digital.