Cash Credit

Cash Credit (CC) is offered by banks/NBFCs to businesses or companies based on their credit history and financial capability. Cash credit is a type of working capital loan in which you will have to hypothecate your stocks and receivables in the form of collateral or security.

You can repay the loan amount within 12 months that can be renewed. The interest rates on cash credit is charged only on the utilized loan amount from the total sanctioned limit.

For Example: If you own a business with cash credit limit of Rs. 20 lakh, and you withdraw Rs. 5 lakh, then the interest shall be charged only on Rs. 5 lakh, not the total credit limit of Rs. 20 lakh.

With a Cash Credit loan, your business gets access to funds to meet working capital needs. Find below the key features of Cash credit for more understanding:

Short-term Loan:  To meet day-to-day business requirements like purchasing machinery/equipment, buying goods and raw materials, paying rent/salaries, etc.

Repayment: Cash Credit is a short-term finance with a repayment tenure of 12 months. It can be repaid on a monthly/quarterly/half-yearly basis, depending upon the issuing bank.

Interest Rate: Interest rate is charged only on the amount utilized, not the full sanctioned limit. Moreover, funds can be withdrawn multiple times from the sanctioned limit.

Collateral/Security Requirement: Typically secured by inventory, receivables, or other current assets. Individual borrowers can also avail cash credit against their fixed deposits.

Borrowing Limit: Higher limits can be availed by businesses with good credit scores and repayment history. Credit limit is sanctioned considering the company’s turnover and tenure, volume and creditworthiness.

Tax Benefit: Interest rate paid on cash credit is tax-deductible.

Find below the comparison of Cash Credit vs Term Loan vs Overdraft for better understanding:

Cash Credit (CC) can be availed by the following business entities that include the following:

Business owners, self-employed professionals, traders, wholesalers, manufacturers, exporters, women entrepreneurs, Proprietorship Firms, Partnership Firms, Private Limited Companies, Public Limited Companies, Limited Liability Partnerships (LLPs) and various other business entities.

Cash Credit interest rates can vary from lender to lender and shall change from time to time. The rates shall also depend on your profile, business type, creditworthiness and financial history.

Also Check: Business Loan Interest Rates of all Banks & NBFCs

The Cash Credit fees and charges levied by banks and NBFCs shall vary from one another. Find below the list of fees and charges applicable while availing cash credit from prospective lenders.

To qualify for a Cash Credit facility, a business or entity must meet certain criteria related to its legal status, financial strength, and operational history.

Procedure to avail Cash Credit

The initial step is that a bank or lender sanctions a limit to a business or enterprise and from the assigned limit, businesses can withdraw money as per their requirements.

However, the limit sanctioned by the lender depends on the current assets and liabilities of the business. Strong and financially sound establishments are sanctioned with higher limits, as compared to businesses with lesser finance or lower credit score.

The interest rate charged by the bank or lender depends on the creditworthiness and submitted collateral by the company or business.

Find below the key benefits of Cash Credit (CC) facility for businesses and companies:

There are several private and public sector banks offering Cash credit loans in India that include SBI, Axis Bank, Bank of Maharashtra, Federal Bank, Kotak Mahindra Bank, etc.

The interest rates, credit limit and processing fees charged shall depend on applicant’s profile, business type, nature of business, financial stability and relationship with the bank.

Cash Credit has no fixed EMIs like term loans and it allows businesses to withdraw funds as per their requirements.The repayment tenure of Cash Credit is usually of 12 months that can be renewed annually. The renewal is based on the bank’s criteria, timely interest payments, credit utilization, business performance, etc.The interest is charged monthly and only on the utilized amount from the total sanctioned limit. Your repayment in the form of the amount deposited reduces the outstanding balance. Moreover, you can withdraw multiple times from the sanctioned limit.