Many small businesses are turned down for loans because they have no property to pledge. The CGTMSE scheme exists for exactly this gap. It lets a lender give a micro or small business a loan without collateral, because a government-backed trust promises to cover a large part of the loss if the loan goes bad. This guide explains the limits, the fee, who pays it and what to ask your bank, as of October 2026.
What is CGTMSE?
CGTMSE stands for the Credit Guarantee Fund Trust for Micro and Small Enterprises. It was set up by the Government of India and SIDBI (Small Industries Development Bank of India) to run the Ministry of MSME's credit guarantee scheme.
A guarantee is a promise. If the borrower does not repay, the trust pays the lender a share of the amount in default. Because the lender carries less risk, it can lend without asking for collateral (property or other assets pledged as extra security) or a third-party guarantee.
One point confuses many people: CGTMSE does not lend money. It does not give loans, credit or subsidies. You apply to a bank or another member lending institution (MLI). The lender then applies for the guarantee cover.
Who can get a CGTMSE-covered loan?
- Micro and small enterprises (MSEs), new or existing, in manufacturing, services or trading. Since 1 April 2025, micro means investment up to ₹2.5 crore and turnover up to ₹10 crore. Small means up to ₹25 crore investment and ₹100 crore turnover. Medium enterprises are outside this scheme.
- Lenders usually ask for a valid Udyam registration.
- The business should not be in default or classified as an NPA (non-performing asset, a loan that has stopped being repaid) with any lender.
Lender pages describe cover for term loans and working capital, and also for non-fund facilities such as bank guarantees and letters of credit. Loans already fully backed by collateral or a third-party guarantee, or covered under another guarantee scheme, are generally excluded. Check with your lender for your case.
How much can be covered?
- Loan size: up to ₹10 crore per borrower, for guarantees from 1 April 2025. The earlier ceiling was ₹5 crore.
- Extent of cover: usually 75% to 85% of the amount in default, depending on the borrower category and loan size. Women-led enterprises can get up to 90%.
- Credit-deficient districts: MSEs in districts that RBI identifies as credit deficient get 5 percentage points more cover, from 15 December 2023. For example, 75% becomes 80%.
- How long: for term loans, the agreed loan tenure. For working-capital-only facilities, 5 years or another period the trust sets.
- Part collateral: a hybrid structure is allowed. If you pledge some security, the guarantee can cover the unsecured part.
What is the CGTMSE annual guarantee fee in 2025–26?
The lender pays the trust an annual guarantee fee (AGF). For guarantees approved or renewed on or after 1 April 2025, the standard rates are:
| Loan amount | Standard fee (% 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% |
- In the first year, the fee is charged on the guaranteed amount. After that, it is charged on the amount outstanding.
- A 10% concession on the rate applies for women, SC/ST entrepreneurs, persons with disabilities, Agniveers and transgender entrepreneurs. It also applies in the North Eastern Region (including Sikkim), aspirational districts, credit-deficient districts, Jammu & Kashmir and Ladakh (loans up to ₹50 lakh), and for ZED-certified units.
- The rate can also move with the lender's own record. Lenders with better portfolios get a discount, and those with high-risk portfolios may pay a risk premium.
Who pays the CGTMSE fee: you or the bank?
CGTMSE says lenders decide whether to pass the fee on to the borrower or absorb it themselves. So the answer depends on your lender. Ask before you sign.
For MSME term loans sanctioned from 1 October 2024, RBI's Key Facts Statement (KFS) rules apply (check the latest directions). The KFS must show the APR (annual percentage rate, the yearly cost including interest and all other charges). A charge not shown in the KFS cannot be levied during the loan without your explicit consent. If the guarantee fee will be recovered from you, it should appear there.
Worked example: what the fee costs on a ₹50 lakh loan
Say a small manufacturer gets a ₹50,00,000 term loan for 5 years at 10.50% (an example rate). The EMI formula is EMI = P × r × (1 + r)^n ÷ ((1 + r)^n − 1), where P is the loan, r is the monthly rate (10.50 ÷ 12 ÷ 100) and n is 60 months. The EMI is ₹1,07,470, and total interest over 5 years is ₹14,48,170.
The fee slab is 0.55%. Using the balance at the start of each loan year as a simple estimate:
| Year | Amount the fee is charged on | Fee at 0.55% |
|---|---|---|
| 1 | ₹50,00,000 | ₹27,500 |
| 2 | ₹41,97,473 | ₹23,086 |
| 3 | ₹33,06,505 | ₹18,186 |
| 4 | ₹23,17,350 | ₹12,745 |
| 5 | ₹12,19,186 | ₹6,706 |
| Total | about ₹88,223 |
The exact base date follows CGTMSE's rules, so treat this as a rough guide. If the business is women-led, the 10% concession cuts the first-year fee to ₹24,750. If your bank absorbs the fee, you pay none of it.
Some banks may also price covered loans differently. Ask your bank whether it gives any rate concession for CGTMSE cover, and check its current Key Facts Statement.
Can a bank ask for collateral on a small MSE loan?
For loans sanctioned or renewed on or after 1 April 2026, RBI mandates banks not to accept collateral on loans up to ₹20 lakh to micro and small enterprises. Banks may raise this to ₹25 lakh for units with a good track record and financial position, under their own policy. Gold or silver that a borrower pledges voluntarily does not break this rule. Banks may use credit guarantee cover where it applies.
So for a bank loan up to ₹20 lakh to an MSE, sanctioned or renewed from 1 April 2026, you should not be asked to mortgage property. Above that, CGTMSE cover is the main route to a loan with little or no collateral.
What should you ask your bank?
- Will this loan be covered under CGTMSE? If not, why not?
- Will you recover the guarantee fee from me? If yes, at what rate, and is it shown in the KFS and APR?
- Is any rate concession given for the cover?
- Will you also ask for collateral or a personal guarantee, and for what part of the loan?
- For a working capital limit, what happens to the cover and fee at each renewal?
How do you spot a fake CGTMSE offer?
The official website is www.cgtmse.in. CGTMSE itself warns that some look-alike websites are not its own. Remember that it does not give loans or subsidies directly. Be careful with anyone who asks for an upfront payment to "arrange" a CGTMSE loan. Apply through a bank or other regulated lender instead.
Do it in 10 minutes, free
Before you apply, use the free DSCR calculator on LowerMyEMI to check whether your cash flow covers the EMI, and the EMI calculator to see the full schedule. Both export to Excel or PDF. If you already have a business loan, LowerMyEMI can draft one email per lender, plus a letter to your own bank, asking for a lower rate. You send them from your own email. It is free, and we are not a lender or loan agent. Lenders decide every rate.