The Ministry of Commerce and Industry (MoCI) on October 06, 2022, issued the Credit Guarantee Scheme for Startups (CGSS) to provide guarantee up to a specified limit against credit instruments extended by Member Institutions (MIs) to finance eligible Startups. This scheme would help provide the much needed collateral free debt funding to Startups.
The folloiwng provisions have been stated:
• The eligibility criteria for borrowers under the scheme
o Startups that have reached stage of stable revenue stream, as assessed from audited monthly statements over a 12 month period, amenable to debt financing, and
o Startup not in default to any lending/investing institution and not classified as Non-Performing Asset as per RBI guidelines, and
o Startup whose eligibility is certified by the member institution for the purpose of guarantee cover.
• The eligibility criteria for lending/investing institutions under the scheme
o Scheduled Commercial Banks and Financial Institutions,
o RBI registered Non-Banking Financial Companies (NBFCs) having a rating of BBB and above as rated by external credit rating agencies accredited by RBI and having minimum net worth of Rs. 100 crore. However, it may be noted that in case an NBFC subsequently becomes ineligible, due to a downgrade in the credit rating below BBB, the NBFC shall not be eligible for further guarantee cover till upgradation again to eligible category.
o SEBI registered Alternative Investment Funds (AIFs)
• Agreement/undertaking to be executed/furnished by the lending/investing institution
A lending/investing institution shall not be entitled to a guarantee in respect of eligible loan/ venture debt facilities granted by it unless it has entered into an agreement with Trustee/submitted an undertaking to the Trustee in such form as may be required by the Trustee.
• Responsibilities of Member Institution under the Scheme
o The MI shall evaluate credit applications by using prudent banking judgement and shall use their business discretion / due diligence in selecting commercially viable proposals and conduct the account(s) of the borrowers with normal banking prudence.
o The MI shall ensure that the guarantee claim in respect of the credit facility and borrower is lodged with the Trust in the form and in the manner and within such time as may be specified by the Trust in this behalf and that there shall not be any delay on its part to notify the default in the borrowers account which shall result in the Trust facing higher guarantee claims.
This scheme will come into force from October 06, 2022. The Loan/Debt facilities sanctioned to an eligible borrower on or after the date of notification of the scheme will be eligible for coverage under the scheme.
Disclaimer – Please refer to the notification for further information on the scheme.
[Notification No. S.O. 4741(E)]
