Credit Guarantee Scheme for Subordinate Debt (CGSSD)

When your business is struggling, a little support can go a long way. That’s exactly why the Ministry of Micro, Small and Medium Enterprises launched the CGSSD scheme on June 24, 2020. Through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), the scheme offers guaranteed subordinate debt to promoters of stressed MSMEs, giving them the financial boost they need to revive and restructure their businesses. It’s a lifeline designed to help you bounce back and get your business back on its feet! 

What is CGSSD?

The Credit Guarantee Scheme for Subordinate Debt (CGSSD) provides guarantee coverage to scheduled commercial banks for personal loans (subordinate debt) given to promoters of stressed MSMEs. The promoters are required to infuse this amount as equity or quasi-equity into the MSME unit to help revive the business.

This scheme specifically targets MSMEs that were classified as SMA-2 or NPA as of April 30, 2020 but are still viable for restructuring. It’s a way to give your business the financial push it needs to get back on track.

Objectives of the CGSSD Scheme

• The scheme provides guarantee coverage for loans to promoters of stressed MSMEs, making it easier for you to get the financial support you need.
• It allows promoters like you to infuse fresh equity or quasi-equity into your business, giving it a much-needed boost.
• It’s designed to support viable MSMEs in restructuring and reviving their operations, so you can get back on track.

• By helping your business recover, the scheme also works to preserve jobs and keep economic activity going in the MSME sector.

  Key Features of Credit Guarantee Scheme for Subordinate Debt

Eligibility Criteria for CGSSD Application

Eligibility

• Promoters of MSME units can apply, whether the MSME is a proprietorship, partnership, private limited company, or registered company.
• Your MSME should have had standard accounts as of March 31, 2018, and continued regular operations during FY 2018-19 and FY 2019-20.
• If your MSME is classified as stressed (SMA-2 or NPA) as of April 30, 2020, you’re eligible for restructuring under RBI guidelines.

Non-Eligibility

• If your MSME account is classified as fraud or willful defaulter, you’re not eligible for this scheme.
• MSMEs that didn’t have a standard account as of March 31, 2018, or weren’t in regular operation during FY 2018-19 and FY 2019-20 are not eligible.
• If your MSME is not classified as stressed (SMA-2 or NPA) as of April 30, 2020, or isn’t eligible for restructuring under RBI guidelines, you cannot apply.

Documents Required for CGSSD Scheme

• KYC documents of promoters and MSME
• MSME registration proof (Udyam Registration, etc.)
• Last audited balance sheet and financial statements.
• Proof of SMA-2 or NPA classification.
• Restructuring proposal/plan.
• Declaration regarding banking arrangements and non-availment from other lenders.
• Any other documents required by the lending institution.

How to Apply for CGSSD?

Step 1: Go to any scheduled commercial bank with your restructuring proposal and the required documents.
Step 2: The bank will assess whether your business needs subordinate debt and if it’s viable for the scheme.
Step 3: Once the bank approves, they will apply for guarantee coverage through the CGTMSE portal.
Step 4: After approval, you’ll receive the subordinate debt as a personal loan, which must be infused as equity or quasi-equity into your MSME.
Step 5: The loan will be treated as a separate account and will be monitored by the lender.

Benefits of the CGSSD Scheme

• Access to Fresh Capital
  You can bring in new funds to help revive your stressed MSME and get it back on track.
• No Additional Collateral
  You don’t need to provide extra collateral, only a second charge on your existing assets is required.
• Flexible Repayment
  You have up to 10 years to repay the loan, with a moratorium of up to 7 years on the principal. During the first 7 years, you’ll only need to pay the interest.
• Improved Financial Health
  By infusing equity, your business’s debt-equity ratio improves, making it more viable and healthier financially.
• Job Preservation
  This scheme helps your MSME retain employees and continue contributing to the local economy.

Real-World Examples of CGSSD

• Textile Manufacturing Unit Revival
• Food Processing MSME Restructuring
• Engineering Workshop Turnaround
• Family-Owned Retail Business Support
• Leather Goods Manufacturer Recovery

Related Government Support Plans with CGSSD

Final Word

The CGSSD scheme is a much-needed lifeline for stressed MSMEs, providing a clear path for financial recovery and restructuring. If you’re eligible, this scheme is your chance to restore your business’s health, protect jobs, and play your part in the broader economic recovery. 

Don’t miss out on this opportunity to get your business back on track!

Reference:

https://dcmsme.gov.in/Subdebt-FINAL-Guidilines-24.06.2020.pdf