Government doubles loan guarantee cap under startup credit scheme

In a move to bolster India’s innovation-driven economy, the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry has expanded the Credit Guarantee Scheme for Startups (CGSS), significantly enhancing credit access for fledgling enterprises.

The revised scheme doubles the guarantee cover limit from Rs 10 crore to Rs 20 crore per borrower. It also increases the extent of guarantee coverage to 85% for loan amounts up to Rs 10 crore and 75% for loans exceeding Rs 10 crore. Previously, the guarantee coverage was capped at 75% of the default amount across the board.

Further sweetening the deal for startups in key industries, the Annual Guarantee Fee (AGF) has been slashed by half from 2% to 1% for startups operating in 27 identified Champion Sectors. These sectors, earmarked under the ‘Make in India’ initiative, include high-potential areas within manufacturing and services designed to boost domestic capabilities and global competitiveness.

“The expansion aligns with Prime Minister Narendra Modi’s vision of transforming India into a self-reliant, innovation-led economy,” the Ministry said in a statement. “It is expected to unlock greater financial flow to startups, reduce risk perception among lenders, and enable increased experimentation and R&D.”

"To boost domestic manufacturing and Aatmanirbharta, 27 Champion Sectors under Make In India will benefit from a reduced annual guarantee fee. This step aims to promote R&D, innovation and further energise India’s entrepreneurial spirit," said Piyush Goyal, Union Minister for Commerce and Industry. 

Launched in October 2022, the CGSS provides credit guarantees to startups through a broad base of financial institutions, including Scheduled Commercial Banks, All India Financial Institutions (AIFIs), NBFCs, and SEBI-registered Alternative Investment Funds (AIFs). The goal is to facilitate collateral-free funding for startups via working capital, term loans, and venture debt.

"Venture debt has become an important element of startups funding journey.  Collateral free debt is almost like a dream for startups and helps them to meet initial funding needs without diluting very quickly. CGSS could help many startups if the eligibility and process of disbursements are objective,” Amarjeet Makhija, Partner and leader - startups, PwC India.

The latest expansion was guided by extensive consultations with stakeholders in the startup ecosystem. According to the government, several operational reforms have also been rolled out to make the scheme more attractive for both borrowers and lenders.

The announcement follows the proposal in the Union Budget 2025–26 to increase credit availability with government-backed guarantees for startups, underlining the Centre’s continued push to catalyse entrepreneurship and advance India toward becoming a "Viksit Bharat" or developed nation.

The Startup India initiative, launched in 2016, laid the foundation for creating a vibrant startup ecosystem. With these latest changes to CGSS, the government is signaling a renewed focus on financing innovation and scaling India's next wave of entrepreneurial success stories.