Credit Guarantee Scheme 2025: Big News for Startup Funding in India

• Massive Boost for Startup Funding: Govt Expands Credit Cover to ₹20 Cr
• Startups Can Now Get Up to ₹20 Cr Without Collateral—Govt Expands Credit Guarantee Scheme
• Less Equity, More Debt? Govt’s New Scheme Could Change How Startups Raise Capital
• Big Relief for Deep-Tech & Manufacturing Startups as Govt Cuts Credit Risk
• Startup Credit Just Got Cheaper—AGF Cut to 1% for Key Sectors

In a major move to enhance capital mobilization for startups, the Government of India has expanded the Credit Guarantee Scheme for Startups (CGSS), introducing key modifications aimed at improving access to credit and fostering innovation across the country’s startup ecosystem.

What’s New in the Scheme?

The expanded scheme, notified by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce and Industry, raises the ceiling on guarantee cover per borrower from ₹10 crore to ₹20 crore. It also increases the extent of the guarantee to 85% for loans up to ₹10 crore and 75% for loans above ₹10 crore.

Originally launched on October 6, 2022, CGSS was introduced as part of the Startup India initiative, which was inaugurated by Prime Minister Narendra Modi on January 16, 2016. The scheme offers collateral-free debt fundingthrough instruments like working capital loans, term loans, and venture debt—backed by government guarantees.

This expansion, aligned with the Union Budget 2025–26, aims to spur early-stage debt financing by mitigating risk for lenders. Funding will be facilitated through Scheduled Commercial Banks, AIFIs, NBFCs, and SEBI-registered Alternative Investment Funds (AIFs).

Support for Priority Sectors

In a targeted push for priority sectors, the Annual Guarantee Fee (AGF) has been halved from 2% to 1% per annum for startups operating in 27 Champion Sectors identified under the Make in India initiative. These sectors are crucial to India's goal of self-reliance and global competitiveness in manufacturing and services.

According to DPIIT, these enhancements are designed to boost credit flow to innovation-led, high-risk sectors, encouraging more financial institutions to participate in startup financing.

Industry Reaction: A Welcome Move

Experts see the CGSS expansion as a game-changing move for India’s startup funding ecosystem, especially for deep-tech, advanced manufacturing, and experimental innovation ventures.

By offering higher credit guarantees, the scheme reduces reliance on equity capital, allowing founders to retain ownership while accessing necessary funds.

“The expansion is in line with the Hon’ble Prime Minister’s vision to transform India into an innovation-driven, self-reliant economy,” DPIIT said. “It will empower startups to invest in R&D, undertake experimentation, and build advanced technologies.”

With reduced risk exposure, banks and NBFCs may now find startup lending more attractive—potentially reversing the traditionally cautious stance of many lenders toward early-stage ventures.

Global Benchmarking: How India Stacks Up

With the expanded CGSS, India’s startup credit guarantee framework now aligns more closely with international best practices:

• United States (SBA Loan Program): Offers up to 85% guarantee coverage for small businesses—matching India’s revised coverage for loans up to ₹10 crore.
• United Kingdom (Enterprise Finance Guarantee): Provides 75% guarantee cover, similar to India’s updated coverage for larger loans.
• South Korea (KODIT): While offering higher guarantee percentages in some cases, India’s revised scheme has become more competitive in terms of institutional access and sectoral focus.

Challenges Ahead: Implementation Is Key

While the scheme is promising on paper, its success hinges on effective execution and widespread awareness. Experts flag several concerns:

• Lender Participation: Banks and NBFCs may still hesitate to lend to startups with unconventional business models or unproven revenue streams.
• Awareness and Accessibility: Many startups, particularly in Tier 2 and Tier 3 cities, remain unaware of such credit support programs.
• Operational Bottlenecks: Delays in loan approvals and guarantee disbursements, coupled with complex paperwork, could hinder the scheme’s impact.

Driving Toward Viksit Bharat

The revised CGSS also incorporates operational reforms, including simplified procedures and relaxed eligibility norms—developed in consultation with stakeholders from the startup ecosystem.

The government believes this move will be a key driver in India’s journey toward becoming a “Viksit Bharat” (developed nation) by enabling a more inclusive, robust, and innovation-driven startup environment.

As India eyes a global leadership role in entrepreneurship and innovation, the success of the CGSS could be pivotal. The next challenge: ensuring smooth implementation, increasing awareness, and keeping the startup ecosystem closely engaged for continuous refinement.