A credit guarantee mechanism is available to MSMEs through the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), which is backed by the government. The risk for lending institutions is greatly reduced by this scheme, but borrowers should be aware of the fees involved. Understanding these charges is essential when seeking to apply for a loan that is supported by the CGTMSE. 

Understanding CGTMSE Fees. 

Two main fees, namely the guarantee fee and the annual service charge, are associated with CGTMSE loans. CGTMSE's main charge is the guarantee fee. The premium it provides serves as a benefit to lenders, decreasing their risk exposure in the event of loan defaults. Loans that are sanctioned have a guarantee fee attached to them. Higher amounts of the loan are typically associated with lower rates, and the exact percentage is dependent on the amount borrowed. As the loan amount increases in CGTMSE, the guarantee fee is distributed in stages. Larger loans for MSMEs are being encouraged. 

A small portion of the outstanding loan amount is typically deducted as an annual service fee. It is charged on a per-year basis during the loan period. The CGTMSE mandates an annual service fee, in addition to the guarantee fee. This fee is a means of supporting the trust's ongoing operations and keeping it financially viable. 

Detailed Breakdown of CGTMSE Fees. 

Loan Amount: Up to ₹10. The percentage of the loan approved is 0.37%, which is equivalent to 0.37 times the guaranteed fee. 

Loan Amount: Above ₹10. Lakh and Up to ₹50. 0.55% of the loan amount is charged as a guarantee fee, which equals to 1 Lakh. 

Loan Amount: Above ₹50. Lakh and Up to ₹1. A 0.60% interest rate on the percentage of loan origin is charged as the Crore, Guarantee Fee. The amount for loans was approved in June 2013. 

Loan Amount: Above ₹1. Crore and Up to ₹2. 1.20% of the loan amount is charged as a gram of crore guarantee fee. The percentage for loans is similar to that of mortgages. 

Loan Amount: Above ₹2. Crore and Up to ₹5. Crore, Guarantee Fee (% of Sanctioned Loan Amount): 1.35% 

Additional Fees and Charges. 

Lending institutions may charge processing fees for handling the loan application and disbursement. There might be additional charges for documentation and other administrative expenses. GST will be applicable additionally. 

Eligibility for Discounts. 

Certain categories of borrowers may be eligible for discounts on the guarantee fee. For example, women entrepreneurs, SC/ST-owned businesses, and micro enterprises may receive a 10% discount. Additionally, enterprises located in the North-Eastern region, including Sikkim, may benefit from reduced fees. 

Non-Refundable Nature. 

CGTMSE fees are generally non-refundable, regardless of loan approval or disbursement. 

Impact of CGTMSE Fees on Borrowing Costs. 

While CGTMSE fees are essential for the functioning of the scheme, they do contribute to the overall borrowing cost for MSMEs. It's crucial for businesses to consider these fees when evaluating the overall cost of a CGTMSE-backed loan. 

Factors Affecting CGTMSE Fees. 

The size of the loan significantly impacts the guarantee fee, with larger loans typically having lower rates. Certain categories of businesses, such as women-owned enterprises or SC/ST-owned businesses, may be eligible for discounts on the guarantee fee. The borrower's creditworthiness can influence the terms and conditions of the loan, including the applicable fees. 

Maximizing Cost-Efficiency. 

To minimize the impact of CGTMSE fees on their borrowing costs, MSMEs can consider the following strategies: Obtain quotes from multiple lenders to compare interest rates, processing fees, and other charges. Try to negotiate with lenders for favorable terms, including lower fees or interest rates. If eligible, take advantage of any available discounts or concessions on the guarantee fee. Adhere to the repayment schedule to avoid penalties or additional charges.