In a significant move to boost startup financing in India, the Department for Promotion of Industry and Internal Trade (DPIIT), under the Ministry of Commerce and Industry, has notified the expansion of the Credit Guarantee Scheme for Startups (CGSS). This reform is set to open new funding avenues for early-stage ventures and reduce perceived lending risks for financial institutions.
Key Highlights of the Credit Guarantee Scheme for Startups (CGSS) Expansion
Here’s what startup founders should take note of: Startups operating in 27 identified Champion Sectors—recognized under the ‘Make in India’ initiative—will now benefit from a reduced AGF of 1% per annum (down from 2%). These sectors include strategic areas in manufacturing and services that the government aims to develop into global hubs of excellence. Doubling of Guarantee Limit
Higher Guarantee Coverage
Reduced Annual Guarantee Fee (AGF) for Champion Sectors
Why This Credit Guarantee Scheme Matters for Startup Founders
More Capital, Less Collateral:
The CGSS continues to offer collateral-free loans, now with enhanced coverage, enabling founders to secure working capital, term loans, and venture debt without giving up equity or assets.
Greater Participation from Lenders:
With the guarantee coverage going up, more banks, NBFCs, AIFs, and financial institutions are likely to participate, giving founders access to a broader pool of debt financing partners.
Improved Runway for Innovation:
By unlocking more capital and reducing fees, the updated scheme allows startups to extend their runway for R&D, market testing, and tech innovation, especially in high-potential sectors like deeptech, healthcare, and EVs.
Boost to Domestic Manufacturing & Self-Reliance:
Startups in Champion Sectors stand to gain a dual advantage—lower funding costs and government-backed confidence—to compete in global markets and contribute to Aatmanirbhar Bharat.
Operational Reforms to Ease Access
The expansion includes founder-friendly operational changes developed after consulting stakeholders from across the startup ecosystem. These are designed to reduce procedural friction and make the scheme more accessible and attractive to both startups and lenders.
Background: The Credit Guarantee Scheme for Startups (CGSS) Journey So Far
Launched in October 2022, the Credit Guarantee Scheme for Startups was part of the broader Startup India initiative, inaugurated by Prime Minister Narendra Modi in 2016. It was created to enable collateral-free debt funding for eligible startups through partnerships with scheduled commercial banks, financial institutions, NBFCs, and SEBI-registered AIFs.
In Budget 2025–26, the Union Government had committed to enhancing credit availability under the CGSS, and this latest expansion is the fulfillment of that promise.
What Founders Should Do Next
If your startup is in a Champion Sector or eligible under Credit Guarantee Scheme for Startups, consult your bank or incubator on how to leverage the enhanced guarantee coverage.
Prepare to access working capital or venture debt through approved financial institutions.
