A founder's guide to collateral-free debt under CGSS

Most Indian founders raise equity by default. For a startup that already has revenue and a clear use for the money, that is often the most expensive capital available. Debt is cheaper and keeps ownership intact, but lenders want collateral, and young companies rarely have any.

The Credit Guarantee Scheme for Startups, notified in October 2022 and run by the National Credit Guarantee Trustee Company, was built for exactly this gap. I have helped more than five DPIIT-recognised startups raise collateral-free debt under it. Here is what founders should know before they start.

What the scheme does

The government guarantees part of a loan made to a DPIIT-recognised startup, so the lender can lend without collateral. Since May 2025 the cover goes up to Rs 20 crore per borrower, double the earlier Rs 10 crore. The guarantee pays 85% of the amount in default on loans up to Rs 10 crore, and 75% above that.

The lenders, called member institutions, include scheduled commercial banks, all-India financial institutions, NBFCs and SEBI-registered alternative investment funds. That last group matters: venture debt funds can use the guarantee too.

Who it suits

The scheme works best for startups with revenue, a record of collections, and a specific need: working capital to fulfil larger orders, equipment, or a new location. Pre-revenue companies find it harder, because the lender still needs to see where repayment will come from.

The guarantee lowers the lender's loss. It leaves the lender's standards where they were.

What I learned taking startups through it

Lenders still underwrite cash flow. The guarantee changes how much they lose if a loan fails, so it makes a good application easier to approve. It does little for a weak one. The startups that moved fastest arrived with clean financials, realistic projections and a use of funds a credit officer could check line by line.

Matching matters as much as preparation. A bank, an NBFC and a venture debt fund look at the same startup very differently, and the right lender for an early company with lumpy revenue is rarely the right lender for a profitable one. Time spent choosing who to approach saves months later.

Finally, debt is a commitment. Repayments start whether or not the next funding round closes, so the loan should be sized to what the business can service from its own cash flow.

Source: Business Standard, May 2025. Check current terms with NCGTC or a member lender before you apply.