1. What is the difference between primary security and collateral security?

Primary security is the asset created out of the credit facility extended to the borrower and / or which are directly associated with the business / project of the borrower for which the credit facility has been extended. Collateral security is any other security offered for the said credit facility. For example, hypothecation of jewellery, mortgage of house, etc.Example: Land, Plant & Machinery or any other business property in the name of a proprietor or unit, if unencumbered, can be taken as primary security.

2. Under the Scheme, any third party guarantee obtained for the credit facilities will make them ineligible for guarantee cover. What is third party guarantee?

As per the extant guidelines no third-party guarantee should be obtained if the account is to be covered under the Credit Guarantee Scheme. However, in case the constitution of the borrower is proprietary or partnership, the personal guarantee of proprietor/ partner is not treated as third party guarantee. Similarly, Personal guarantee of directors, where borrower constitution is a company is not treated as third-party guarantee. Wherever, collateral security has been obtained and the account is covered under ‘Hybrid security’ product of CGTMSE, the personal guarantee of owner of the collateral security is not treated as third party guarantee. Notwithstanding the foregoing, wherever a co-obligant or co-borrower is signatory to the loan agreement, the personal guarantee of: (a) a sole proprietor or individual as co-borrower or co- obligant; (b) partners of the co-borrower or co- obligant partnership or LLP; (c) trustees of the co-borrower or co- obligant trust; (d) Karta and Coparceners of the co-borrower or co- obligant HUF or (e) promoter directors of the co-borrower or co- obligant company are not treated as  Third Party Guarantee.

3. Whether Primary Security is mandatory for Coverage under CGTMSE ?

Yes, unsecured lending is not eligible under CGS-I. Obtaining Primary Security is mandatory for Guarantee Coverage.