CGSS for startups: how the government's loan cover works

Banks ask for collateral a young company doesn't have, so founders tend to skip debt altogether. CGSS, the government's credit scheme for startup loans, exists to change that maths.

It hasn't changed much yet. India has over 2.3 lakh DPIIT-recognised startups, and the government's own Press Information Bureau backgrounder from June 2026 counts just over 330 loans under CGSS, worth more than ₹800 crore. That's a scheme most eligible founders have never used. If you're raising equity and nothing else, it's worth an hour to see whether debt could carry part of the load. It sits alongside the other schemes in our guide to government funding for startups in India.

What CGSS is

CGSS covers part of a lender's loss if a DPIIT-recognised startup can't repay. Because the government carries much of the risk, a bank, NBFC or venture debt fund can lend to you without asking for property or fixed deposits as security. A company called NCGTC runs it for the government.

The current rules come from a DPIIT notification of 8 May 2025, reproduced in full by TaxGuru, which replaced the October 2022 version. You don't apply to the scheme. You apply to a lender that's a member, and the lender applies for cover on your loan.

What the cover looks like

The May 2025 rules doubled the maximum cover per borrower to ₹20 crore, from ₹10 crore. On each loan, the scheme pays a share of the amount in default, and that share falls as the loan grows. Here's the shape of it:

• Cap per borrower: ₹20 crore of cover in total.
• Loans up to ₹10 crore: 85% of the amount in default is covered.
• Amounts above ₹10 crore: 75% is covered.
• Annual fee: 2% a year in general; 1.5% for units in the North East and for women entrepreneurs; 1% for startups in the 27 champion sectors.
• Credit types: venture debt, working capital, subordinated or mezzanine debt, debentures, optionally convertible debt and other debt facilities.

That fee matters. On a covered loan, 2% a year is real money for a company burning cash. Ask your lender who pays it, and whether it's already in the rate they quoted. If you're in a champion sector, check the list before the term sheet; halving the fee is worth a phone call.

Who can borrow, and who can lend

You can borrow under CGSS if your company is recognised by DPIIT, isn't in default to any lender or investor, and isn't classed as a non-performing asset under RBI rules. The lender certifies that you qualify. Three kinds of lender can use the scheme.

Banks and NBFCs

Scheduled commercial banks and financial institutions can lend under it. So can NBFCs registered with the RBI, but only those rated BBB or above with net worth of at least ₹100 crore. A small fintech lender may not qualify. Ask.

Venture debt funds

SEBI-registered AIFs can take part too. They don't get loan-by-loan cover. Venture debt funds registered as AIFs use an umbrella form instead, where the scheme covers losses across a pool of startup loans, up to a limit. For you, the practical point is simple: a venture debt term sheet may already have CGSS behind it, and you can ask.

What global practice says about loan cover

Public loan cover works better when it's partial. Lenders who carry some of the loss check borrowers more carefully, and the World Bank's principles for these schemes say so directly. CGSS follows that pattern: it never covers the whole default.

The World Bank's principles for public loan cover schemes for SMEs, published with the FIRST Initiative in 2015, say cover should be high enough to bring lenders in but should leave them a meaningful share of the risk, and in principle shouldn't fall below 50%. They also allow higher cover for early-stage firms. These principles were written for small businesses worldwide, not for Indian startups, so treat them as a design benchmark. By that benchmark, cover of 85% and 75% sits at the generous end. That's deliberate. Startups have little to pledge.

There's a flip side for you as a borrower. Because the lender still carries 15% to 25% of any loss, it won't treat the cover as a reason to skip its own checks. Expect questions about runway, your next equity round and who your anchor customers are. A founder who can answer them with documents gets a faster yes.

The scheme doesn't lend you anything. It makes you a borrower a bank can say yes to.

Before you ask a lender

A lender using CGSS still runs its own credit check, and it'll look a lot like an investor's diligence. Prepare the same documents, and you'll move faster on both tracks:

1. Your DPIIT recognition certificate, and proof you're not in default anywhere.
2. The last two years of ROC filings, GST returns and bank statements.
3. Signed client contracts with their invoices, so revenue can be traced.
4. A clean cap table, including any convertible notes or CCDs.
5. Your sector, checked against the champion sector list for the lower fee.

Our due diligence checklist for founders covers each document in detail, and how capital moves in India in 2026 shows where debt sits beside equity. On MyStartupValley, founders get a dedicated workspace in MSV Founders, and startups are evaluated on six due diligence parameters: founder verification, market sizing, cap table, legal, client agreements and compliance. The same readiness helps with a lender. Start at the founder workspace.

Questions

What is CGSS for startups?

CGSS is the government's credit scheme for startup loans. It covers part of a lender's loss if a DPIIT-recognised startup defaults, so banks, NBFCs and venture debt funds can lend without asking the founder for collateral. NCGTC runs it, and the current rules were notified in May 2025.

How much can a startup borrow under CGSS?

The cover is capped at Rs 20 crore per borrower under the May 2025 notification, up from Rs 10 crore. For each loan, the scheme covers 85% of the amount in default on loans up to Rs 10 crore and 75% on amounts above that. Your lender still sets the loan size and terms.

Who can lend under CGSS?

Scheduled commercial banks and financial institutions, NBFCs registered with the RBI that are rated BBB or above with net worth of at least Rs 100 crore, and SEBI-registered AIFs. Venture debt funds registered as AIFs use a pooled form of cover rather than loan-by-loan cover.

What does CGSS cost?

The scheme charges an annual fee on loan-by-loan cover: 2% a year in general, 1.5% for units in the North East and women entrepreneurs, and 1% for startups in the 27 champion sectors. Ask your lender who bears that fee and whether it's built into your interest rate.

Sources: DPIIT notification S.O. 2046(E) on the Credit Guarantee Scheme for Startups, 8 May 2025 (as reproduced by TaxGuru) · Press Information Bureau, A Decade of Startup India (backgrounder), 15 Jan 2026 · Press Information Bureau, Empowered Youth, Stronger Nation (backgrounder), 13 Jun 2026 · World Bank and FIRST Initiative, Principles for Public Credit Guarantee Schemes for SMEs, Dec 2015