Indian Government Offers Startups Collateral-Free Debt
Startup India is promoting its Credit Guarantee Scheme for Startups (CGSS) to give founders access to collateral-free debt funding. The organization hosted a workshop in New Delhi where startups could seek up to ₹20 crore in non-dilutive capital and interact directly with banks and non-banking financial companies.
- The Credit Guarantee Scheme for Startups (CGSS) was initially launched on October 6, 2022, by the Department for Promotion of Industry and Internal Trade (DPIIT) as part of the Startup India Action Plan. A revised version with expanded features came into effect on May 8, 2025. The scheme's primary goal is to enable collateral-free debt funding for eligible startups to cover expenses like working capital, term loans, and venture debt. - To qualify, a startup must be recognized by the DPIIT, not have defaulted on any loans, and have a stable revenue stream as assessed from audited monthly statements over a 12-month period. The funding is disbursed through Member Institutions (MIs), which include scheduled commercial banks, select NBFCs, and SEBI-registered Alternative Investment Funds (AIFs). - The government provides a guarantee to the lending institutions, covering a significant portion of the defaulted loan amount. For loans up to ₹10 crore, the guarantee covers 85% of the default, and for loans exceeding ₹10 crore, it covers 75%. - The maximum guarantee cover for a single borrower has been increased from ₹10 crore to ₹20 crore. This enhancement aims to improve the availability of credit for startups. - An Annual Guarantee Fee is charged, which is set at a concessional rate of 1.5% per annum for women entrepreneurs and startups based in the North-East region. For other startups, the standard fee is 2% per annum. - The scheme is part of a broader government effort to foster the startup ecosystem, which also includes the Startup India Seed Fund Scheme (SISFS). The SISFS provides up to ₹20 lakh as a grant for proof of concept and prototype development, and up to ₹50 lakh for market entry and commercialization. - While equity financing from venture capitalists is a common route, debt financing is positioned as a strategic alternative for operationally strong startups to fund growth without diluting founder ownership. Success stories of Indian startups like OYO Rooms, Flipkart, and Zomato utilizing debt syndication for expansion highlight this trend.
