CGTMSE collateral-free business loans: limits, guarantee fee and how to apply

CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) guarantees part of a collateral-free loan that a member bank or NBFC gives to a micro or small enterprise. Since 1 April 2025 the ceiling is ₹10 crore per borrower, and the annual guarantee fee starts at 0.37% for loans up to ₹10 lakh and rises by slab to 1.20% for loans above ₹8 crore, plus GST. You do not apply to CGTMSE yourself: you apply to the lender, who decides to sanction the loan and seeks the cover. The lender usually passes the fee on to you, so it is a real cost to add to the interest rate.

This guide is part of the MSME business loan interest rates overview. Check the current scheme document on the CGTMSE website before relying on any figure.

Who is eligible

• Micro and small enterprises as defined by the Ministry of MSME, in manufacturing, services and trading. Medium enterprises are not covered by CGTMSE.
• A valid Udyam Registration Number is required for the guarantee. See Udyam registration.
• The loan must be given by a member lending institution: most scheduled commercial banks, many small finance banks, RRBs and eligible NBFCs are members.
• The facility must be without collateral security and third-party guarantee. Under the hybrid security option, a lender may take collateral for part of the loan and seek CGTMSE cover for the unsecured part, within the overall ceiling.
• Term loans and working capital limits both qualify.

Annual guarantee fee from 1 April 2025

Source: fee table published by member banks for guarantees approved or renewed from 1 April 2025. Concessions exist for some categories (for example women entrepreneurs, units in certain regions and ZED-certified units); these and the extent of guarantee cover (which differs by borrower category and loan size, typically in the 75%–90% range) are in the scheme document.

The fee is paid upfront for the first year and then every year to keep the guarantee alive. For term loans the later years are normally charged on the outstanding amount; confirm the basis with your lender.

Worked example: CGTMSE fee on a ₹20 lakh, 3-year loan

Illustrative bank loan of ₹20 lakh at 11.5% for 3 years, collateral-free, slab 0.55%:

• Year 1: 0.55% × ₹20,00,000 = ₹11,000 + 18% GST = ₹12,980
• Outstanding after 12 months ≈ ₹14,08,018; year 2 fee ≈ 0.55% × ₹14,08,018 × 1.18 = ₹9,138
• Outstanding after 24 months ≈ ₹7,44,253; year 3 fee ≈ ₹4,830

Total CGTMSE cost ≈ ₹26,948 over three years. Combined with a 1% processing fee plus GST (₹23,600), the APR on this loan rises from 11.5% to roughly 13.2%. That is still far cheaper than an unsecured NBFC loan at 16% with a 2% fee (APR around 17.7%). See comparing business loan offers.

How this fits with the RBI collateral rule

Two separate rules work together:

1. RBI's mandatory collateral-free limit. Under RBI's February 2026 amendment to its MSME lending directions, banks must not accept collateral for loans up to ₹20 lakh to micro and small enterprises sanctioned or renewed on or after 1 April 2026. Banks may raise this to ₹25 lakh for units with a good track record and financial position, under their own policy. A gold or silver ornament pledged voluntarily by the borrower is not treated as a breach. Banks are encouraged to obtain credit guarantee cover on these loans.
2. CGTMSE. Above ₹20 lakh, collateral-free lending is a choice the lender makes, and CGTMSE cover up to ₹10 crore makes that choice easier.

So for a ₹15 lakh loan, a bank should not ask for property as security at all. For a ₹60 lakh loan, it may ask for collateral or offer a CGTMSE-covered loan instead; ask for the second option and compare the fee with the cost of mortgage paperwork.

How to ask for a CGTMSE-covered loan

1. Get Udyam registration and check your classification is micro or small.
2. Prepare normal documents (ITRs, financials, GST returns, bank statements, project report). See the document checklist.
3. Tell the lender you want the loan without collateral under CGTMSE, and ask for the fee and guarantee cover in writing.
4. Check the KFS lists the CGTMSE fee as a charge, with GST.
5. Diarise the annual renewal of the fee; if it is not paid the guarantee may lapse, and the lender may then ask for security.

When CGTMSE does not help

• Your enterprise is medium, not micro or small.
• The lender insists on property for its own risk reasons; the scheme does not oblige a lender to lend.
• The facility is already covered by another government or insurance guarantee scheme.
• Large machinery projects: the separate Mutual Credit Guarantee Scheme for MSMEs (MCGS-MSME), operated by NCGTC from 2025, offers a 60% guarantee on loans up to ₹100 crore for equipment-heavy projects; check eligibility with your bank. See the machinery loan worked example.

Frequently asked questions

Does a CGTMSE guarantee mean I don't have to repay if the business fails?

No. The guarantee protects the lender, not you. If the account becomes an NPA and the lender invokes the guarantee, the debt is still yours and the lender will continue recovery, including on any promoter guarantee. See SMA, NPA and restructuring.

Can I apply to CGTMSE directly?

No. Only member lending institutions apply for cover. Anyone offering to "get CGTMSE approval" for a fee is not part of the scheme.

Is the CGTMSE fee deductible?

Guarantee fees paid for a business loan are generally a business expense, and GST on it may be available as input tax credit if conditions are met. Confirm with your CA.

Does CGTMSE cover Mudra loans?

Mudra loans are generally covered by a different fund, the Credit Guarantee Fund for Micro Units (CGFMU), managed by NCGTC. See the Mudra guide.

Sources

• CGTMSE — scheme document, guarantee cover and fee
• Reserve Bank of India — Lending to MSME Sector directions and the 2026 amendment
• NCGTC — CGFMU and the Mutual Credit Guarantee Scheme
• Ministry of MSME — MSME classification