Credit Guarantee Scheme for Startups (CGSS): Collateral-Free Debt
How CGSS enables collateral-free lending to DPIIT-recognised startups, the guarantee limits and coverage rates, the fee structure, and how to actually access it through a lender.
Verify before acting. Guarantee limits, coverage rates and fees are set by notification and change. Check startupindia.gov.in and the NCGTC site for the current position. Figures verified against public sources in July 2026.
What CGSS actually is
This is the point most explanations bury, and it determines how you should approach the scheme.
CGSS does not lend you money. It provides a guarantee to a lender, covering a portion of the loss if you default. That reduces the lender's risk, which is what makes them willing to lend without collateral.
The practical consequence: you do not apply to CGSS. You apply to a lender. The lender assesses your creditworthiness on its own criteria, decides whether to lend, and then seeks guarantee cover under the scheme. A guarantee scheme cannot make a lender want to lend to you.
Understanding this saves a lot of wasted effort looking for a CGSS application form.
Why it matters
Early-stage companies have a structural problem with debt: they have no assets to pledge. A software company's value is in its code, its team and its contracts, none of which a lender can readily realise. So conventional secured lending is unavailable, and equity becomes the only option - which is expensive at an early stage.
CGSS is designed to open a debt route. Debt does not dilute you. For a company with predictable revenue that needs working capital or growth funding, debt at a reasonable rate is frequently a better instrument than equity, and founders under-use it largely because they assume it is unavailable.
The numbers
Maximum guarantee cover per borrower: ₹20 crore. This was doubled from the previous ceiling under the expanded scheme.
Coverage rates:
- 85% of the amount in default, for loan amounts up to ₹10 crore
- 75% of the amount in default, for loan amounts exceeding ₹10 crore
Annual Guarantee Fee. Charged for the cover. The AGF for startups in the scheme's identified 27 champion sectors was reduced to 1% per annum, from 2% previously.
That champion-sector reduction is worth checking against your own sector, because halving the guarantee fee is a real reduction in your cost of borrowing.
Note that the guarantee protects the lender, but the fee is typically an economic cost passed to the borrower. Factor it into your effective interest rate when comparing options.
Eligibility
DPIIT recognition is required. If you do not have it, that is the first step - it is free and the application is separate. See the DPIIT recognition guide in this series.
Beyond that, the scheme sets conditions relating to the startup's stage and standing, and - critically - the lender applies its own credit assessment. Recognition makes you eligible for cover; it does not make you creditworthy in a lender's eyes.
What lenders will typically want to see:
- Revenue, and ideally predictable recurring revenue
- A track record of operations
- Clean statutory compliance and filings
- Reasonable financial ratios
- Promoter background
- A clear purpose for the funds and a repayment plan
A pre-revenue startup with no operating history will struggle regardless of the guarantee, because the guarantee covers a portion of the loss and the lender still bears the rest.
Which lenders
Cover is available through member institutions - scheduled banks, financial institutions, NBFCs, and in some cases SEBI-registered Alternative Investment Funds providing venture debt.
Practical approach:
- Confirm you hold DPIIT recognition
- Identify member lending institutions - the NCGTC and Startup India sites list participating lenders
- Approach lenders directly, and more than one
- Ask explicitly whether they will seek CGSS cover for your facility
That last point matters. Not every eligible lender actively uses the scheme, and front-line branch staff are frequently unaware of it. Ask for someone who handles startup or MSME lending, and name the scheme.
Preparing to borrow
Lenders assess differently from equity investors, and founders used to pitching equity frequently under-prepare for this.
What lenders care about:
- Ability to repay. Cash flow, not growth potential. A lender does not benefit from your upside; they need the instalments paid.
- Predictability. Recurring revenue and contracted revenue are far more persuasive than a strong growth rate.
- Compliance history. Filings current, taxes paid, no defaults. This is checked properly.
- Clean financials. Audited where applicable, and reconciling with your tax filings.
- Existing debt. Total obligations and coverage ratios.
- Promoter credit history. Personal credit scores are frequently examined for founder-led companies.
What to have ready:
- Financial statements for available years
- Bank statements
- GST returns and tax filings
- Debtor ageing and, if relevant, contracted revenue schedules
- A specific purpose for the funds and a repayment schedule you can actually service
- Cap table and shareholding
- DPIIT recognition certificate
Be realistic about the amount. Lenders size facilities against serviceability. Asking for an amount your cash flow cannot support results in a decline rather than a negotiation.
Debt versus equity, briefly
Debt is not a lesser form of financing; it is a different one, and the comparison is worth making explicitly.
Debt suits you when: you have predictable revenue, you need working capital or a specific growth investment with a knowable return, and you do not want to dilute.
Debt does not suit you when: revenue is unpredictable, you are pre-revenue, or the funds are for an experiment that may not work. A fixed repayment obligation against uncertain revenue is how companies get into difficulty.
The combination is common and sensible. Equity for the risky, long-horizon investment; debt for the predictable working capital requirement. Using equity to fund receivables is expensive.
Related schemes
CGSS is specific to DPIIT-recognised startups. There is a separate, longer-established guarantee mechanism for MSMEs, which may be more accessible if you hold Udyam registration but not DPIIT recognition, or if your profile suits it better. Ask lenders about both - they are different schemes with different criteria, and a lender may be able to use one where the other does not fit.
The one-line summary
CGSS guarantees the lender, not you - so approach member banks and NBFCs directly rather than looking for a scheme application. Cover is up to ₹20 crore per borrower, at 85% of default for loans up to ₹10 crore and 75% above that, with the annual guarantee fee reduced to 1% for champion sectors. DPIIT recognition is a precondition, but the credit decision is the lender's, and they will assess cash flow and compliance rather than growth potential.
Frequently asked questions
- What is the maximum guarantee under CGSS?
- The maximum guarantee cover per borrower was doubled to ₹20 crore. Coverage is 85% of the amount in default for loans up to ₹10 crore, and 75% for loan amounts exceeding ₹10 crore.
- Does CGSS give you the loan directly?
- No. CGSS provides a guarantee to the lender, not funding to you. You apply to a member lending institution - a bank, NBFC or venture debt fund - which then seeks guarantee cover. The credit decision remains entirely the lender's.
- Who is eligible for CGSS?
- DPIIT-recognised startups, subject to the scheme's conditions on stage, standing and the lender's own credit assessment. Recognition is a precondition, not a guarantee of access.
