In a major move to enhance credit access for Indian startups, the government expanded the Credit Guarantee Scheme for Startups (CGSS) on Friday. The Department for Promotion of Industry and Internal Trade (DPIIT) notified the revision, which significantly raises the maximum guarantee cover per borrower. The new limit stands at ₹20 crore, up from the previous ₹10 crore. With this increase, the government has demonstrated its intent to back startups more strongly and reduce the risks that banks and financial institutions face when lending to young companies.
The revised scheme does more than just raise the maximum cover. It also increases the percentage of the loan that the government guarantees. For loans up to ₹10 crore, the CGSS now provides an 85% guarantee cover. For loans exceeding ₹10 crore, the coverage is 75%. This step ensures broader and deeper protection for lenders, encouraging them to extend more credit to high-potential startups.
Startups often struggle to secure loans because they typically lack fixed assets or a long credit history. Traditional lenders hesitate to take the plunge, fearing high default risks. The expanded CGSS directly tackles this issue by reducing the perceived risk associated with startup lending. By offering enhanced guarantee support, the scheme motivates more financial institutions to lend to early-stage ventures without demanding collateral or excessive equity dilution.
DPIIT made it clear that this move aims to drive innovation across sectors by making funding more accessible. The notification states that the extended guarantee coverage will prompt more financial institutions to participate in startup lending. As a result, fund flow into the startup ecosystem will increase significantly. This, in turn, will accelerate the growth of innovation-driven businesses, allowing India to sharpen its competitive edge in sectors like technology, healthcare, green energy, and digital services.
Experts have welcomed the revision as a vital development in India’s startup journey. Amarjeet Makhija, partner and leader – Startups at PwC India, emphasized the importance of collateral-free venture debt for startups. He explained that early-stage ventures often look for non-dilutive capital to fund their operations, build prototypes, and scale up. Without sufficient revenue or assets to offer as security, they struggle to qualify for conventional loans. The CGSS offers a credible alternative by backing loans without the need for collateral, giving startups breathing room and a chance to thrive.
Makhija also pointed out that the success of the CGSS depends on how objectively the authorities implement the eligibility and disbursement process. If the government ensures fairness and transparency, more startups will gain timely access to crucial funds, and lenders will find the process easier and safer to navigate.
The CGSS is part of the broader Startup India initiative, launched on January 16, 2016. Since its inception, the initiative has worked to build a robust ecosystem for innovation, entrepreneurship, and employment generation. On October 6, 2022, the government notified the CGSS to guarantee credit instruments extended by Scheduled Commercial Banks, All India Financial Institutions (AIFIs), Non-Banking Financial Companies (NBFCs), and SEBI-registered Alternative Investment Funds (AIFs). This step filled a critical gap in the startup funding cycle by promoting debt-based financing alongside equity investments.
The latest changes to the scheme will likely amplify its impact. As of May 9, 2025, India has 173,413 DPIIT-recognized startups. Many of these ventures require working capital, funds for research and development, and resources to expand into new markets. By widening the scope and strength of CGSS, the government is giving these businesses the financial tools they need to evolve from local startups into global leaders.
Amit Sachdev, co-founder and chief operating officer at M1xchange, also praised the government’s efforts. He highlighted how the expansion of CGSS will not only strengthen lender confidence but also energize the broader MSME ecosystem. According to Sachdev, the scheme’s broader risk mitigation framework will allow financial institutions to support startups through mechanisms like supply chain financing, bill discounting, and working capital loans. Startups and MSMEs can use these tools to streamline operations, manage cash flows, and engage more effectively with their supply chains.
Sachdev further stressed that these developments will reinforce the ‘Make in India’ vision. With better access to credit, Indian manufacturers and service providers can scale their operations and enhance productivity. This will position India as a powerful player in global supply chains and manufacturing networks, especially as companies worldwide seek alternatives to existing hubs.
The significance of expanding CGSS goes beyond startup funding. It signals a maturing approach toward economic development, where the government doesn’t just celebrate entrepreneurship but actively supports it through policy innovation and risk-sharing frameworks. Startups often represent untested ideas with high potential but equally high uncertainty. By assuming a greater portion of the credit risk, the government acknowledges this uncertainty and partners with the private sector to support promising ventures.
Moreover, the revised scheme opens up more possibilities for inclusion. Startups based in Tier II and Tier III cities, which often find themselves sidelined by investors, can now approach financial institutions with more confidence. The increased coverage under CGSS makes these startups more attractive to lenders, breaking down the urban bias that has historically plagued Indian entrepreneurship.
At the same time, the government must ensure that this ambitious scheme doesn’t get bogged down by bureaucratic inefficiencies. Fast processing of guarantee claims, streamlined approvals, and clear communication between departments will be crucial for the scheme’s success. Financial institutions will only continue lending to startups if they see reliable enforcement of the guarantees promised under the scheme.
To make CGSS even more effective, stakeholders have called for regular audits, data-driven reviews, and public transparency in reporting outcomes. Tracking the number of startups that benefit from the scheme, the sectors they represent, and the job creation impact will help refine the policy over time.
In conclusion, the expansion of the Credit Guarantee Scheme for Startups represents a powerful move to democratize startup financing in India. By doubling the guarantee limit and increasing the extent of coverage, the government has made startup loans less risky and more attractive for lenders. This will lead to a broader flow of capital into the startup ecosystem, nurturing innovation and supporting economic growth.
As India positions itself as a global innovation hub, such initiatives underline the government’s commitment to creating a fertile environment for entrepreneurship. With clear execution and sustained support, the CGSS can emerge as a game-changer in India’s startup success story.