CGTMSE Collateral Free Loan: Cover, Fee and Who Qualifies
CGTMSE is a government-backed trust that guarantees a bank's loan to a micro or small enterprise, so the bank can lend without asking for property or a third-party guarantor. It is not a loan and not a subsidy. You apply to the bank; the bank takes the cover, for loans up to Rs 10 crore, and pays a yearly fee.
- Cover goes up to Rs 10 crore per borrower from banks, Rs 2 crore from small finance banks, RRBs and co-operative banks, and Rs 50 lakh from microfinance institutions.
- The guarantee covers 75% to 90% of the amount in default, depending on loan size and who you are.
- The yearly fee starts at 0.37% for loans up to Rs 10 lakh and rises to 1.20% at the top slab, before the lender's risk loading.
- Udyam registration is mandatory, and retail and wholesale trade are eligible.
- Separately, RBI bars banks from taking collateral on loans up to Rs 20 lakh to micro and small units from 1 April 2026.
In this guide
How does the guarantee actually work?
Think of it as insurance for the bank. If you default, CGTMSE pays the bank a share of the loss. Because that risk is covered, the bank can lend against the project's own strength: the stock, machines and receivables bought with the loan, which are called primary security. Collateral means anything extra, like a house or jewellery, and that is what the scheme lets you avoid.
Can you apply to CGTMSE yourself? No. The trust deals only with its member lending institutions. You approach a bank or NBFC that is a member, and it applies for the cover online after it sanctions your loan.
Who qualifies?
- New or existing micro and small enterprises in manufacturing or services, including retail and wholesale trade and educational or training institutions.
- Not covered: agriculture, self-help groups and joint liability groups.
- Udyam registration of the borrower is mandatory. PAN is required for loans above Rs 5 lakh.
- No collateral and no third-party guarantee on the covered part. Your own personal guarantee as proprietor, partner or director is not treated as third party.
- Primary security is compulsory. A fully unsecured loan is not eligible.
- The account must be standard. A loan that is already a non-performing asset cannot be covered.
- For loans above Rs 50 lakh, the bank must rate you internally at investment grade.
Have some property to offer anyway? The hybrid security option lets the bank take collateral for part of the loan and cover the rest under CGTMSE.
How much of the loan is covered?
| Borrower | Loan up to Rs 5 lakh | Above Rs 5 lakh to Rs 50 lakh | Above Rs 50 lakh to Rs 10 crore |
|---|---|---|---|
| Micro enterprises | 85% | 75% | 75% |
| Units in the North East, Jammu and Kashmir and Ladakh | 80% (up to Rs 50 lakh) | 80% (up to Rs 50 lakh) | 75% |
| Women entrepreneurs, MSEs promoted by Agniveers | 90% | 90% | 90% |
| SC/ST entrepreneurs, persons with disability, aspirational districts, ZED certified, transgender entrepreneurs | 85% | 85% | 85% |
| All others | 75% | 75% | 75% |
Units in RBI's identified credit deficient districts get 5 percentage points more. These figures apply to guarantees approved from 1 April 2025.
What does it cost?
| Loan slab (total exposure) | Standard yearly fee |
|---|---|
| Up to Rs 10 lakh | 0.37% |
| Above Rs 10 lakh to Rs 50 lakh | 0.55% |
| Above Rs 50 lakh to Rs 1 crore | 0.60% |
| Above Rs 1 crore to Rs 2 crore | 0.85% |
| Above Rs 2 crore to Rs 5 crore | 1.00% |
| Above Rs 5 crore to Rs 8 crore | 1.10% |
| Above Rs 8 crore to Rs 10 crore | 1.20% |
The first year's fee is charged on the guaranteed amount and later years on the amount outstanding. The fee includes GST. Lenders with a weak track record pay a risk premium of up to 70% over the standard rate; lenders with a good one get 10% off. Women, SC/ST entrepreneurs, units in the North East (up to Rs 50 lakh), aspirational districts and ZED certified units get 10% off each, up to 30% in all.
Who pays the fee? The scheme lets the bank recover it from you, at its discretion. Most do, so ask at sanction.
A worked example
You run a micro enterprise and get a Rs 40,00,000 loan without collateral: a term loan for machines and a cash credit limit. The slab is above Rs 10 lakh to Rs 50 lakh.
- First-year fee at the standard 0.55%: Rs 22,000.
- If the bank carries a 70% risk premium, the rate is 0.94%: Rs 37,600.
- Second year, with Rs 32,00,000 outstanding at 0.55%: Rs 17,600.
- Cover: 75% of the amount in default, or 90% if you are a woman entrepreneur.
Compare that with the alternative. Mortgaging a property means valuation, legal search and mortgage costs, and your home tied to the business. For many small owners the fee is the cheaper route. Put it in your project report as a cost of the loan.
How to ask for it
- Get Udyam registration if you do not have it. It is free on the government portal.
- Pick a member lender. CGTMSE publishes its list of member institutions.
- Say in your application that you want the loan without collateral under CGTMSE cover.
- Show the project stands on its own, with a project report, projections and repayment capacity.
- Ask at sanction what fee you will bear each year and for how long.
The mistake people usually make
The usual mistake is treating CGTMSE cover as a right. It is not. The trust can reject a proposal, and the bank decides first whether the project is viable. A weak project with CGTMSE cover is still a weak project.
The second is paying someone who promises a "CGTMSE loan". You cannot apply to the trust, so no agent can get it for you. Go to the bank.
For what the bank reads in your file, see DSCR and the ratios banks check and project report for a bank loan.
Sources
- CGTMSE: Credit Guarantee Scheme (CGS-I) document, updated as on 1 April 2026 (checked 12 Nov 2026)
- CGTMSE: credit facilities and parameters (checked 12 Nov 2026)
- CGTMSE: eligible borrowers (checked 12 Nov 2026)
- CGTMSE: primary security, collateral and third-party guarantee (checked 12 Nov 2026)
- CGTMSE: annual guarantee fee (checked 12 Nov 2026)
- RBI: Lending to MSME Sector (Amendment) Directions, 2026 (checked 12 Nov 2026)
How AprilTax can help
A collateral-free loan is decided on the strength of your project. An AprilTax Tax Expert can prepare a detailed project report for your bank at a fixed fee of Rs 4,999, or CMA data at Rs 1,999. You fill one online form and add your documents. Start at Project report and CMA with AprilTax.
Frequently asked questions
What is CGTMSE?
What is the maximum loan covered by CGTMSE?
Can I apply to CGTMSE directly?
What is the CGTMSE fee?
Who pays the CGTMSE fee, the bank or the borrower?
Are traders and online sellers eligible for CGTMSE?
Is collateral needed for loans up to Rs 20 lakh?
How much of the loan does CGTMSE cover?
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