![Collateral-Free Government Loans for Indian Startups: Up to ₹20 Crore Without Giving Up Equity [2026]](/_next/image?url=https%3A%2F%2Fsblog.backrr.com%2Fuploads%2FHow_to_Get_Funded_in_2026_Lessons_from_15_Women_Led_Startups_2_c848e3fe16.png&w=3840&q=75)
You Are Giving Up Equity You Did Not Have To
Here is a situation most Indian founders have been in.
Runway is getting short. The next equity round is three months away. The options feel binary: raise more equity now and dilute again, or cut the team. Nobody mentions a third option — because most founders do not know it exists.
There are government-backed schemes in India that give DPIIT-recognised startups access to collateral-free loans of up to ₹20 crore. No equity given up. No collateral required. The government guarantees the loan to the bank so the bank does not need your assets as security. You repay the loan with interest and keep every share you were about to sell.
As Amarjeet Makhija, Partner and Leader for Startups at PwC India put it:
"Collateral-free debt is almost like a dream for startups and helps them meet early-stage funding needs without diluting very quickly.
Most founders have never applied. Most have never even heard of these schemes. This article fixes that.
Before you read further, keep your DPIIT certificate, financial records and cap table organized on Backrr — every scheme in this article asks for them within the first week of application.
Why This Matters More in 2026 Than It Did Last Year
The Startup India Seed Fund Scheme — the most widely known government grant for early-stage startups — closed on 31 May 2026. For founders who relied on it or were planning to apply, that window is gone.
What is still live and open: the Credit Guarantee Scheme for Startups, collateral-free loans up to ₹20 crore, the Fund of Funds for Startups, the Section 80-IAC tax holiday, and MUDRA Tarun Plus
CGSS is now the primary government-backed capital vehicle for DPIIT-recognised startups. And yet most founders applying for their first equity round have never looked at it. That gap is the point of this article.
The Three Schemes — What They Are and Who They Are For
There are three distinct government-backed debt vehicles for Indian startups. They serve different stages and different founder profiles. Pick the one that fits where you are right now.
| Scheme | Best for | Maximum loan | DPIIT needed |
|---|---|---|---|
| CGSS | DPIIT startup needing ₹1 Cr to ₹20 Cr | ₹20 crore | Yes |
| CGTMSE | MSME-registered founder, no DPIIT yet | ₹5 crore | No |
| SIDBI SMILE | First-time borrower, very early stage | ₹20 lakh (general); ₹30 lakh (SC/ST/women/PWD) | No — Udyam registration |
None of these require you to pledge your house, your equipment, or any asset. The government guarantees the loan to the lender. The lender takes the risk off the collateral requirement and assesses you on business viability instead.
Scheme 1: CGSS — The One Most Founders Should Be Using
The Credit Guarantee Scheme for Startups is the headline scheme. The government doubled the maximum guarantee cover per borrower from ₹10 crore to ₹20 crore in May 2025, and reduced the annual guarantee fee to 1% for startups in 27 Champion Sectors under Make in India.
Here is what that means in practice. Say you need ₹3 crore to extend runway by eight months and hit your Series A metrics. You approach a scheduled commercial bank. Normally, they ask for collateral — property, equipment, receivables. You have none. They say no.
Under CGSS, the government through NCGTC steps in as guarantor. For loans up to ₹10 crore, the guarantee covers 85% of the amount in default. For loans above ₹10 crore, the coverage is 75%. The bank's risk drops dramatically. They assess your business — revenue, projections, repayment capacity — and if it stacks up, they lend without the collateral requirement.
What you need to qualify:
| Requirement | Detail |
|---|---|
| DPIIT recognition | Must be current and active |
| Not in default | No NPA classification with any lender |
| Certified by lender | The member institution certifies your eligibility |
| Business plan | Revenue projections and repayment plan |
| CIBIL score | Above 700 is the practical threshold most lenders use |
How to apply:
- Confirm your DPIIT recognition is active at startupindia.gov.in
- Approach a CGSS member institution — SBI, Indian Bank, Axis Bank, and most scheduled commercial banks and BBB-rated NBFCs with ₹100 crore+ net worth are empanelled
- Submit a loan application with your DPIIT certificate, business plan, financial projections, and GST returns
- The bank assesses your creditworthiness and applies the CGSS guarantee
- Loan is disbursed without collateral
The interest rate: Set by the lending institution. SIDBI direct loans under CGSS run between 8% and 12% per annum — typically 3 to 6% lower than commercial bank rates for the same profile.
The honest caveat: The guarantee removes the collateral problem. It does not remove the viability test. The bank still evaluates your business like any credit proposal. A startup with no revenue, no GST history, and a CIBIL score below 650 will still struggle regardless of DPIIT recognition. Use this scheme when you have some operating history — even six months of clean financials makes a material difference to how a lender evaluates the application.
Scheme 2: CGTMSE — If You Are Not DPIIT-Recognised Yet
CGTMSE was not built for startups specifically — it covers all micro and small enterprises. But if you have Udyam registration and your company qualifies as a micro or small enterprise, it gives you access to collateral-free debt up to ₹5 crore without needing DPIIT recognition.
CGTMSE provides credit guarantee cover for collateral-free loans up to ₹5 crore, with enhanced limits for women entrepreneurs and startups in the North East. Micro enterprises get up to ₹2 crore in enhanced guarantee coverage.
Do you qualify as a micro or small enterprise?
| Category | Investment in plant and machinery | Annual turnover |
|---|---|---|
| Micro | Up to ₹1 crore | Up to ₹5 crore |
| Small | Up to ₹10 crore | Up to ₹50 crore |
If your company sits inside these thresholds, CGTMSE is accessible to you right now — even without DPIIT recognition, even without a formal fundraising history.
How to apply:
- Register on Udyam portal (udyamregistration.gov.in) if you have not already
- Approach any CGTMSE-empanelled bank or NBFC with a loan application
- Reference the CGTMSE scheme explicitly — the bank submits the guarantee request to CGTMSE on your behalf
- Loan disbursed without collateral requirement
The practical use case: A founder who has not yet applied for DPIIT recognition, or whose startup is in a pre-recognition phase, can use CGTMSE to access working capital immediately. Get the loan, build the financial track record, then apply for DPIIT recognition and graduate to CGSS for larger tickets.
Scheme 3: SIDBI SMILE — For the Very First Loan
SIDBI SMILE is the smallest ticket in this database but the most accessible for a first-time borrower with no credit history.
The maximum loan amount under the SMILE soft loan quasi-equity component is ₹20 lakh for general category enterprises and ₹30 lakh for enterprises promoted by Scheduled Castes, Scheduled Tribes, persons with disabilities, and women with a controlling stake of at least 51%.
The broader SIDBI direct lending range under SMILE can go significantly higher — up to ₹25 crore — subject to project viability and SIDBI's internal assessment. But for a founder approaching SIDBI for the first time, the quasi-equity soft loan component in the ₹10 lakh to ₹20 lakh range is the realistic starting point.
Why use SMILE at all if the ticket is small?
Because it builds your formal credit history. A startup that has borrowed from SIDBI under SMILE, repaid cleanly, and maintained a good relationship with a government lender is a materially stronger CGSS applicant six months later. The ₹15 lakh SMILE loan is not the destination. It is the credit track record that unlocks the ₹3 crore CGSS loan next.
How to apply: Visit sidbi.in and navigate to the startup or MSME lending section. SIDBI has branch offices in Bangalore, Mumbai, Delhi, Chennai, Hyderabad, Pune, and most major cities. Walk in with Udyam registration, incorporation documents, and a project plan. The minimum loan starts at around ₹10 lakh.
The Honest Comparison — Equity vs Government Debt
Most founders reaching for another equity round to bridge a six-month gap have not done this math.
| Funding route | Cost to founder | What you give up |
|---|---|---|
| Equity bridge round | 8 to 15% dilution at current valuation | Permanent ownership, board rights, future dilution compounds |
| CGSS loan (₹2 Cr at 10% pa) | ₹20 lakh interest per year | Nothing permanent — repay and done |
| CGTMSE loan (₹50L at 12% pa) | ₹6 lakh interest per year | Nothing permanent |
The interest cost is real. But it is temporary and bounded. The equity you issue to bridge a six-month gap dilutes your cap table permanently — and compounds through every future round. A CGSS loan that buys you to your Series A metric on a clean cap table is often worth significantly more than the interest it costs.
What Lenders Check — Before You Walk In
The guarantee removes the collateral problem. The lender still evaluates these:
| What they check | Practical threshold | How to prepare |
|---|---|---|
| DPIIT / Udyam registration | Active and current | Confirm before applying |
| CIBIL score | Above 700 is the working threshold | Check at CIBIL.com before approaching |
| GST returns | Filed and reconciled | Minimum 6 months of clean filings |
| Bank statements | Consistent, no unexplained large debits | Keep your current account active and clean |
| Business plan | Specific use of funds and repayment schedule | Milestone-based plan, not a category list |
| Existing debt | Total debt-to-equity ratio | Document existing liabilities cleanly |
Use Backrr to keep your DPIIT certificate, financial records, cap table, and business plan in one place — lenders ask for all of these within the first week of application and a disorganized response delays the process by weeks.
The Decision Framework — Which Scheme First
Answer these three questions and you will know where to start.
Question 1: Do you have DPIIT recognition? Yes → Start with CGSS if you need ₹1 crore or more. Start with SMILE if this is your first formal debt and you want to build a track record. No → Start with CGTMSE using Udyam registration. Apply for DPIIT recognition simultaneously.
Question 2: How much do you need? Under ₹20 lakh → SIDBI SMILE. ₹20 lakh to ₹5 crore → CGTMSE or CGSS depending on DPIIT status. ₹5 crore to ₹20 crore → CGSS only.
Question 3: How strong is your credit profile? Clean CIBIL above 700, 6+ months GST history → Approach CGSS or CGTMSE directly via a bank. No credit history yet → Start with SIDBI SMILE to build the track record first.
You Do Not Have To Choose Between Equity and Nothing
The founding assumption of most Indian startup fundraising is that the only real capital is equity. Banks do not lend to startups. Debt requires collateral you do not have. Government schemes are too slow or too small to matter.
Every part of that assumption is either wrong or was recently changed. CGSS now covers up to ₹20 crore per borrower with 85% guarantee coverage on loans up to ₹10 crore. The Startup India Seed Fund closed, but CGSS is live, active, and the most consequential government debt tool for DPIIT-recognised founders in India right now.
Pair this with our reads on government grants for Indian startups and venture debt funds for Indian startups to build a complete picture of non-dilutive capital before your next equity round.
The capital is there. The founders who use it arrive at their Series A with more runway, a cleaner cap table, and proof that at least one institution has already bet on their ability to repay. Create your Backrr profile to keep your fundraising materials organized — so when the bank asks for your DPIIT certificate and last six months of GST returns, you are not assembling them from scratch.
