CGTMSE scheme: how the government guarantee on business loans works

CGTMSE full form and who runs it

The CGTMSE scheme is run by the Credit Guarantee Fund Trust for Micro and Small Enterprises. The Ministry of MSME and the Small Industries Development Bank of India (SIDBI) set it up together (CGTMSE).

The trust does one job. It promises a lender that, if a covered loan goes bad, the trust will pay the lender a fixed share of the loss. That promise lets a lender give a business a loan without asking for property or a third-party guarantor as security.

The scheme most people mean is Credit Guarantee Scheme I (CGS-I), for banks and similar lenders. A separate CGS-II covers loans from non-banking financial companies (NBFCs, finance companies regulated by RBI that are not banks) (CGTMSE scheme document, CGTMSE).

How the CGTMSE scheme works, step by step

You never apply to CGTMSE yourself. The lender does (CGTMSE).

1. You apply to a lender that is registered with CGTMSE, for a term loan or a working capital limit.
2. The lender assesses your business as it would for any loan: cash flow, repayment record, the use of the money. Cover does not replace this check.
3. The lender sanctions the loan (gives formal approval of the amount and terms) without collateral, or with collateral on only part of it (CGTMSE scheme document).
4. After sanction or disbursal, the lender applies for cover to CGTMSE and pays the yearly guarantee fee (CGTMSE, CGTMSE scheme document).
5. If the loan later turns bad, the lender claims a share of the loss from the trust. You still owe the full debt to the lender (CGTMSE scheme document). The coverage and claims guide explains the claim rules.

CGTMSE at a glance

These are the figures in the CGS-I scheme document updated on 01-Apr-2026, for guarantees approved on or after 01-Apr-2025.

Two spokes hold the detail. The CGTMSE fee guide has every fee slab and concession. The coverage and claims guide has the cover percentage for each category.

Which lenders offer CGTMSE-covered loans

Any lender registered with the trust as a member lending institution can apply for cover. Under CGS-I that means scheduled commercial banks (public, private and foreign), regional rural banks, co-operative banks, small finance banks and microfinance institutions. NBFCs register under CGS-II. CGTMSE reported 322 registered lenders across both schemes as on 31-Mar-2026 (CGTMSE).

There is no single lender that is right for every business. Cover is available at all of them, so the choice comes down to the same things as any loan: the rate, the fees, the speed and whether the lender lends to your kind of business. Each lender decides for itself whether to seek cover on your loan.

By 31-Mar-2026 the trust had approved 1,41,00,000 guarantees since it began (CGTMSE).

Interest rate on a CGTMSE loan

CGTMSE does not set the interest rate. The lender does, using its own pricing and RBI rules. The trust sets only the guarantee fee (CGTMSE scheme document).

So a "CGTMSE loan interest rate" is simply the lender's rate for that loan. Add the guarantee fee, if the lender passes it on, to see the full yearly cost. The fee is charged on the covered amount in the first year and on the outstanding amount after that (CGTMSE scheme document).

Does every collateral-free loan need CGTMSE?

No. Two different rules are often mixed up.

• RBI's collateral rule. Banks must not take collateral on loans up to ₹20,00,000 to micro and small enterprises, for loans sanctioned or renewed from 01-Apr-2026. A bank may go to ₹25,00,000 for a unit with a good track record (RBI notification, 09-Feb-2026). This applies whether or not the loan has CGTMSE cover.
• CGTMSE cover. This is a choice the lender makes to protect itself, usually on larger collateral-free loans. It reaches up to ₹10,00,00,000 at public sector, private sector and foreign banks and select financial institutions, and only up to ₹2,00,00,000 at small finance banks, regional rural banks and co-operative banks (CGTMSE scheme document).

Micro Credit Card under CGTMSE

The Union Budget 2025-26 announced customised credit cards with a ₹5,00,000 limit for micro enterprises registered on the Udyam portal (Union Budget speech). CGTMSE brought these "Micro Credit Cards" under its guarantee on 18-Mar-2026 (CGTMSE circular 259).

Whether banks are issuing these cards widely, and on what timeline, had not been confirmed when we checked (CGTMSE circular 259). Ask your bank whether it offers one. You will need an Udyam registration first.

Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME)

MCGS-MSME is a separate guarantee that the National Credit Guarantee Trustee Company (NCGTC) runs. It is not part of CGTMSE. Launched in January 2025, it gives lenders 60% cover on loans of up to ₹1,00,00,00,000 for buying equipment or machinery (PIB press release, 21-Mar-2026).

On 21-Mar-2026 the government changed it (PIB press release, 21-Mar-2026):

Medium enterprises are covered here, unlike CGTMSE (PIB press release, 21-Mar-2026, CGTMSE scheme document). A lender decides whether to use the scheme, as with any guarantee. For machinery loans, see equipment financing.

Other government credit guarantee schemes for business loans

CGTMSE is not the only guarantee. The right one depends on the loan, and the lender picks it. A single loan carries one cover: CGTMSE does not cover a loan that already has a guarantee through the National Credit Guarantee Trustee Company (NCGTC) (CGTMSE scheme document).

The difference between CGTMSE and CGFMU, the guarantee behind Mudra loans, is set out in Mudra vs CGTMSE. CGFMU charges a fee of 1% a year in the first year on the sanctioned amount (NCGTC CGFMU FAQ). For machinery loans, see equipment financing. For invoice-based credit, see invoice and bill discounting.

CGTMSE loan for a new business

A new business can be covered. The scheme's definition of an eligible borrower includes "new or existing" micro and small enterprises (CGTMSE scheme document). The lender still has to believe the business can repay. For loans above ₹50,00,000, its internal rating must be investment grade (CGTMSE scheme document). A first-time business usually starts smaller.

Whether your business is micro or small depends on the Udyam limits: for a micro enterprise, investment up to ₹2,50,00,000 and turnover up to ₹10,00,00,000 (Udyam Registration portal). The CGTMSE eligibility guide covers the full test.

What the CGTMSE scheme does not do

• It does not lend. The money comes from a bank or another registered lender (CGTMSE).
• It is not a subsidy. Nothing is paid to you, and nothing reduces your loan.
• It does not cancel your debt. If the trust pays a claim, the lender must still recover the full amount from you (CGTMSE scheme document).
• It does not cover loans backed by collateral. The exception is the unsecured part of a hybrid loan (CGTMSE scheme document).
• It does not cover medium enterprises (CGTMSE scheme document).
• It does not decide your loan. A lender can refuse a loan even if the business would qualify for cover.

Your next step

Cover helps only after a lender decides to lend. Before you ask about CGTMSE, run the free loan readiness check to see how a lender is likely to read your banking, filings and repayment record. You can also estimate a loan size with the business loan eligibility calculator, or read about government-backed business loans and unsecured business loans. The government schemes guide compares CGTMSE with Mudra and the other schemes.