CGTMSE explained: collateral-free MSME loans, eligibility and guarantee fees

CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) guarantees loans that banks and other member lenders give to micro and small enterprises without collateral or a third-party guarantee. If the borrower defaults, CGTMSE pays the lender a fixed share of the loss, usually 75% to 90%. Since 1 April 2025, a single borrower can get cover for loans of up to ₹10 crore, and the annual fee starts at 0.37% a year.

For the borrower, this means a bank can sanction a loan on the strength of the business itself, without first asking for a house or shop to be mortgaged. For the lender, it turns a fully unsecured exposure into one where most of the risk is shared.

Who runs CGTMSE and what it covers

CGTMSE was set up by the Ministry of MSME and SIDBI. It does not lend money itself. The lender sanctions the loan under its own credit policy and then applies for the guarantee on the CGTMSE portal. Once the guarantee is approved, the account carries a cover number and the lender pays an annual fee to keep it alive.

The cover applies to:

Fund-based facilities: term loans, cash credit, overdraft and other working capital limits.
Non-fund-based facilities: such as bank guarantees and letters of credit, where the lender's scheme permits.
New and existing units, in manufacturing, services and trading (retail and wholesale).

Loans to self-help groups are not covered.

Eligibility: borrower and lender

The borrower must be a micro or small enterprise. Under the limits announced in Budget 2025-26:

Category	Investment in plant, machinery or equipment	Turnover
Micro	Up to ₹2.5 crore	Up to ₹10 crore
Small	Up to ₹25 crore	Up to ₹100 crore

Medium enterprises are outside CGTMSE. In practice, banks ask for Udyam registration to confirm the category.

The lender must be a Member Lending Institution (MLI) registered with CGTMSE. All scheduled commercial banks and many small finance banks, regional rural banks and NBFCs are members. If your lender is not a member, the guarantee simply isn't available on that loan.

The loan must be collateral-free for the part being guaranteed. That is the core condition. If the bank has already taken a property mortgage for the full amount, there is nothing for CGTMSE to guarantee.

How the collateral-free rule links to CGTMSE

RBI has separately told banks not to take collateral on small MSE loans. Under RBI's amendment of 9 February 2026, for loans sanctioned or renewed from 1 April 2026, banks must not ask for collateral on MSE loans of up to ₹20 lakh (up from ₹10 lakh earlier). Banks may also waive collateral up to ₹25 lakh for units with a good track record, under their own policy.

This is where CGTMSE comes in. A bank lending ₹18 lakh without collateral is carrying full credit risk; with CGTMSE cover, it shares most of that risk. That is why, in practice, banks routinely put collateral-free MSE loans under CGTMSE and recover the fee from the borrower.

How much of the loan is guaranteed

CGTMSE does not guarantee 100% of the loan. The "extent of cover" depends on the borrower category and loan size. For guarantees approved from 1 April 2025:

Borrower category	Up to ₹5 lakh	Above ₹5 lakh to ₹50 lakh	Above ₹50 lakh to ₹10 crore
Micro enterprises	85%	75%	75%
MSEs in the North East (incl. Sikkim), J&K and Ladakh	80%	80%	75%
Women entrepreneurs and MSEs promoted by Agniveers	90%	90%	90%
SC/ST entrepreneurs, persons with disability, Aspirational Districts, ZED-certified MSEs	85%	85%	85%
All others	75%	75%	75%

MSEs in RBI's Identified Credit Deficient Districts get an extra 5 percentage points (for example, 75% becomes 80%). MSEs promoted by transgender entrepreneurs get 85% cover.

The balance (10% to 25%) is the lender's own risk. That is deliberate: the lender still has to appraise the loan properly, because it loses money too if the account fails.

The annual guarantee fee (AGF)

The fee is charged every year the guarantee runs. For the first year it is calculated on the amount guaranteed; after that, on the outstanding amount. GST at 18% is added. Standard rates for guarantees from 1 April 2025:

Credit facility	AGF (% a year)
Up to ₹10 lakh	0.37%
Above ₹10 lakh to ₹50 lakh	0.55%
Above ₹50 lakh to ₹1 crore	0.60%
Above ₹1 crore to ₹2 crore	0.85%
Above ₹2 crore to ₹5 crore	1.00%
Above ₹5 crore to ₹8 crore	1.10%
Above ₹8 crore to ₹10 crore	1.20%

A 10% discount on the fee applies to women, SC/ST, persons with disability and Agniveer-promoted MSEs, to MSEs in Aspirational Districts, Credit Deficient Districts and the North East (up to ₹50 lakh), and to ZED-certified MSEs, with a combined discount of up to 30%. Transgender entrepreneurs also get a 10% concession. The rate can also vary slightly by lender, because CGTMSE adds a risk premium based on each lender's portfolio quality.

Worked example: a ₹70 lakh loan to a micro enterprise

A typical case: a micro manufacturing unit is sanctioned a ₹40 lakh cash credit and a ₹30 lakh term loan, total ₹70 lakh, with no collateral. The bank puts the whole exposure under CGTMSE.

Extent of cover: micro enterprise, loan above ₹50 lakh → 75%.

First-year fee: slab above ₹50 lakh to ₹1 crore → 0.60%.

AGF = ₹70,00,000 × 0.60% = ₹42,000
GST at 18% = ₹7,560
Total = ₹49,560 for the first year

If the same unit were promoted by a woman entrepreneur, the cover would be 90% and the fee would be 0.54% after the 10% discount: ₹37,800 plus GST, or ₹44,604.

If the account turns NPA: suppose ₹50 lakh is outstanding and in default when the claim is made.

Guaranteed portion = 75% × ₹50 lakh = ₹37.5 lakh
First instalment from CGTMSE (75% of the guaranteed amount) = ₹28.125 lakh
Second instalment (remaining 25%) = ₹9.375 lakh, paid after recovery proceedings conclude

The bank bears the other ₹12.5 lakh of loss, less whatever it recovers. Any recovery after the claim is paid has to be shared back with CGTMSE.

Before any of this, the bank will still test repayment capacity like any other loan. You can check the numbers the credit desk will look at with the DSCR calculator for the term loan and the drawing power calculator for the cash credit.

Hybrid security: part collateral, part CGTMSE

Many borrowers have some collateral but not enough to cover the full loan. CGTMSE allows hybrid security: the lender takes collateral for part of the loan, and CGTMSE guarantees the unsecured balance, within the overall ₹10 crore ceiling.

For example, a small enterprise gets a ₹2 crore loan and offers a property that the bank values at ₹80 lakh under its policy. The unsecured portion is ₹1.2 crore. At 75% cover, CGTMSE guarantees ₹90 lakh. CGTMSE takes only a notional charge on the property; no mortgage is created in its favour, and recoveries from selling that collateral stay with the lender.

Lock-in, NPA and claims: the lender's side

These rules sit with the bank, but borrowers should know them because they explain how banks behave after a default:

Lock-in: a claim can be lodged only after 18 months from the later of the guarantee start date or the last disbursement. For loans of up to ₹10 lakh with a tenor of up to 36 months, the lock-in is 9 months.
Legal action: for the first claim, the lender must normally have started recovery action (SARFAESI, DRT, civil suit, Lok Adalat and so on). For outstanding amounts up to ₹10 lakh, claims can be settled without legal proceedings.
Fee renewal: if the annual fee is not paid on time, the cover lapses. A lapsed cover means no claim, which is why banks debit the AGF to the borrower's account without waiting.

In practice, the existence of CGTMSE cover does not make a bank relax its follow-up. A default still means an NPA, a hit to the borrower's credit history and recovery action.

What CGTMSE does not do

It does not replace credit appraisal. The bank decides whether to lend; CGTMSE only shares the loss. A weak proposal is rejected with or without the guarantee.
It does not reduce your liability. The borrower owes the full loan; the guarantee protects the lender, not the borrower.
It is not a subsidy. It works alongside schemes like PMEGP and Mudra, which have their own rules.

Getting your financials in order matters more than the guarantee. If you are preparing projections for a bank, read CMA data mistakes that delay sanction and use the EMI calculator to see what the repayment will look like.

Frequently asked questions

Can I apply to CGTMSE directly? No. Only the lender can apply. You apply for the loan at a bank or NBFC that is a CGTMSE member, and the lender obtains the cover.

Who pays the guarantee fee? CGTMSE collects it from the lender. In practice, most lenders recover it from the borrower, so read your sanction letter to see the fee and GST.

Can a bank ask for collateral on a CGTMSE-covered loan? Not for the portion being guaranteed. Under hybrid security, a bank can take collateral for part of the loan and get CGTMSE cover for the rest. For MSE loans up to ₹20 lakh, RBI rules bar collateral altogether.

Is retail trade eligible? Yes. Retail and wholesale trading units that qualify as micro or small enterprises are eligible, up to the same ₹10 crore ceiling.