CGTMSE Scheme Update: Collateral-Free Loan Guarantee Raised from 5 Cr to ?10 Cr for MSMEs

CGTMSE Scheme Update: Collateral-Free Loan Guarantee Raised from 5 Cr to 10 Cr for MSMEs

In a major relief for Micro, Small, and Medium Enterprises (MSMEs), the Government of India has announced a significant change in the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) Scheme. The guarantee cover limit has now been raised from ?5 crore to ?10 crore, making it easier for MSMEs to secure larger loans without providing any collateral.

This is a bold step toward empowering the MSME sector, especially those struggling with limited access to finance, and is expected to unlock over ?1.5 lakh crore in additional credit over the next five years.

What is CGTMSE?

The CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) is a government-backed scheme that helps small businesses secure loans without offering any collateral or security. Instead of the borrower, the scheme provides a guarantee to the bank in case of default, reducing the lender's risk and encouraging financial institutions to support more MSMEs.

What’s New in the 2025 Update?

Until recently, the maximum loan amount covered under CGTMSE was ?5 crore. But as per the Budget 2025 announcement, this has now been doubled to ?10 crore.

Here’s what it means:

MSMEs can now avail loans up to ?10 crore without collateral.

Banks are more confident to lend, knowing that the government will cover the default risk up to 10 crore.

Medium-sized enterprises (not just micro and small) now also fall within the CGTMSE safety net.

Why This Matters for MSMEs

Previously, if an MSME needed, say ?8 crore in funding, only ?5 crore would be backed by CGTMSE. For the remaining ?3 crore, banks would often ask for collateral — a challenge for many small business owners without real estate or valuable assets.

Now, the entire ?8 crore — or even up to ?10 crore — is fully covered, meaning no property or personal guarantees are needed. This gives businesses more financial freedom and reduces dependence on asset-based lending.

Example Scenario

A manufacturing MSME wants to scale operations and needs ?9 crore. Under the old system:

• ?5 crore was backed by CGTMSE
• ?4 crore required collateral or personal guarantees
• With the updated scheme:
• The entire ?9 crore is covered
• The business owner can proceed without pledging any personal or business asset
• The bank is assured of repayment up to the guaranteed amount, increasing chances of loan approval

Expected Impact

According to official estimates, this enhancement in the CGTMSE scheme is expected to enable an additional ?1.5 lakh crore in loan disbursements over five years.

This is particularly impactful post-pandemic, when many MSMEs are in urgent need of funds to restart or grow their business

Key Benefits of the New CGTMSE Update

•  Collateral-free loans up to ?10 crore
•  Reduced risk for lenders
•  Greater access to credit for medium-sized enterprises
•  Boosts business confidence and expansion
•  Promotes financial inclusion

FAQs 

Q1. What is the new loan guarantee limit under CGTMSE?

Ans: The loan guarantee limit has been increased from ?5 crore to ?10 crore.

Q2. Who can apply for collateral-free loans under CGTMSE?

Ans: All Micro, Small, and now eligible Medium Enterprises (MSMEs) can apply through partnering banks and NBFCs.

Q3. Do I need to pledge any asset for a 10 crore loan?

Ans: No. Under the updated CGTMSE scheme, loans up to ?10 crore are eligible for full government-backed guarantee without any collateral.

Q4. How does this help the lender?

Ans: CGTMSE provides a guarantee cover to the lending bank, reducing the risk of lending. If the borrower defaults, the government compensates a major portion of the loan amount.

Q5. Is the scheme available for existing MSMEs looking to expand?

Ans: Yes. Both new and existing eligible MSMEs can benefit from the increased guarantee cover for business expansion or working capital needs.

Q6. How can I apply for a CGTMSE-backed loan?

Ans: You can apply through any bank or financial institution partnered with CGTMSE. Ensure your enterprise is registered as an MSME and meets other eligibility criteria.

Final Thoughts

The enhancement of the CGTMSE scheme to ?10 crore marks a major shift in India’s efforts to support small businesses and medium enterprises. With zero collateral requirements and improved guarantee coverage, MSMEs can now grow with confidence and fewer financial hurdles.

To stay updated on such powerful schemes and finance opportunities for businesses, follow FinanceSeva — your trusted platform for MSME and startup finance solutions.