collateral free loans

How Your Business Can Benefit From The Government’s Collateral Free Working Capital Facilities?

We have all heard the old adage, Cash is King, ever so often. But, for small and medium-sized businesses, it is a struggle to generate surplus cash, especially in the early years. With long payment cycles and increasingly frequent tax payouts, cash reserves for businesses are shrinking day by day.

Recently, we wrote a blog article on raising equity financing by diluting promoter shareholding. However, your business can also raise funds without you having to sell off your shares, by raising debt. The traditional way in which business owners mitigate working capital deficit is by using lines of credit through overdraft and cash-credit products from banks. However, this has its limitations as well and is often a function of the collateral provided.

Enter CGTMSE – the Government of India’s barely publicised special financial product that is designed to help businesses like yours flourish with working capital.

The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) was instituted by the government to provide collateral-free financial aid to businesses. Yes, you heard that right – you don’t need to mortgage your house (literally) to avail of a new line of credit!

Here’s How It Works –

  • Companies can borrow up to INR 2 crore, based on their projected financials. Sanctioned amounts are usually 15 to 25% of annual turnover
  • There is no collateral – the directors must simply stand as personal guarantors
  • CGTMSE levies a fee of 1% to 2.6% of the sanctioned amount
  • Your bank levies a fee of 9% to 11% based on the health of your business
  • The overall borrowing rate ranges between 11.5% and 13%
  • The funds are then available in the form of an overdraft facility with your bank within 3-6 weeks

Now that you have access to a fresh line of credit, there’s a lot that you can do with capital to grow your business.

Feel free to reach out to us on 9870523213 or pinkesh@savagepalmer.com if you would like to know more about raising debt.