Cash Credit is short-term funding or loan for a company to meet its working capital requirements. Bank offers loans to an enterprise depending on its credit history and financial stability. Funding procured from cash credit loans can be used for various business purposes, such as business expansion, buying plant and machinery, purchasing raw materials, enhancing stocks, hiring staff, paying-off salaries, undertaking training, debt consolidation, etc. Cash credit has a loan repayment tenure of a maximum of up to 12 months that can be renewed.
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Cash credit loan is a type of working capital loan in which money can be withdrawn against the hypothecation of stocks and receivables. Cash credit instantly helps businesses in overcoming the cash crunch situation during business tenure. This working capital loan can be availed either in form of a secured loan or an unsecured loan. The business is limited to borrow only up to the sanctioned limit from the lender. Businesses need to submit collateral or security to avail cash credit loan wherein the collateral to be submitted can be in the form of fixed assets, stock-in-trade, raw materials, finished goods, equipment, property, etc.
Cash Credit Interest Rate
The interest rate for availing Cash Credit loan varies from bank to bank that shall change from time to time and depends on the creditworthiness and financial history of the applicant.
Also Get: Business Loan Interest Rate List of All Banks and NBFCs
Features of Cash Credit
- Cash credit is a short-term loan with a repayment period of 12 months
- Interest rate charged by the lender is on the money withdrawn and not on the total sanctioned limit
- Money can be withdrawn any number of times from the sanctioned limit
- Cash credit is always offered against collateral or security
- Higher limits can be availed by businesses with good credit scores and repayment history
- Credit limit is sanctioned considering the company’s turnover and volume
- Cash credit can be repaid in form of monthly, quarterly, or half-yearly repayments
- Individual borrowers can also avail cash credit against their Fixed Deposits
- Lender has an option of recalling sanctioned amount at short notice
- Interest rate paid on cash credit is tax-deductible

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How it Works
Cash credit permits an enterprise to withdraw money from a bank account. The money can be withdrawn a number of times until the total sanctioned limit is reached. The cash limit is defined by the lender as per the applicant’s profile, CIBIL score, creditworthiness. These factors are based on the borrower’s company structure and its assets and liabilities.
Documents Required
- Duly filled application form with Passport-sized photographs
- Business PAN card
- KYC documents: Applicant’s Passport, Driving License, Voter’s ID card, PAN card, Aadhar card, Utility Bills (Water/ Electricity Bills)
- Income Proof: Last 6 months’ bank statement
- Business Incorporation Certificate
- Business address proof
- Ownership proof: Company’s deed
- Details of collateral or security to be submitted
- Any other document required by the lender

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Procedure to avail Cash Credit
The initial step is that 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.
Also Read: How to Apply for Business Loan – Step by Step Procedure
Eligible Entities
Cash Credit Facility can be availed by Individuals, Professionals, Business Owners, Companies, Partnerships, Sole Proprietorships, Limited Liability Partnerships (LLPs), Co-operative Societies, and Registered Trusts engaged in manufacturing, trading, and services categorized under MSME.
Advantages and Disadvantages of Cash Credit
Pros | Cons |
No collateral required | Rate of Interest is High |
Interest Rate on the withdrawn or utilized amount | Short-term Loan |
No CIBIL score check is required | Lesser repayment period of 12 months |
Interest paid is tax-deductible | Difficult to avail by Startups |
Quick and easily accessible with flexibility | Used mainly to meet working capital requirements |
Cash Credit offered by Leading Banks/NBFCs
Axis Bank | IDFC First Bank |
Bajaj Finserv | J&K Bank |
Bank of Baroda | Kotak Mahindra Bank |
Canara Bank | Punjab National Bank |
HDFC Bank | RBL Bank |
ICICI Bank | Yes Bank |
IDBI Bank |
Availing cash credit loan becomes difficult if due to market fluctuations the performance of the enterprise goes down during business tenure. However, if the business is doing well then the lender sanctions the cash credit at ease, as the chances of its repayment capacity increase. The financial institution sets a pre-determined credit limit based on the previous year’s performance, the current year’s estimated performance, and projections of the next year. Businesses can reduce the interest rate burden by depositing money at regular intervals or whenever possible.
FAQs
Q. What is the loan amount offered under the Cash credit facility?
Ans. The loan amount offered by financial institutions depends on the volume of stocks and receivables possessed by a unit.
Q. Do banks require collateral before sanctioning Cash Credit limits to applicants?
Ans. Yes, banks require collateral security of residential and commercial properties before sanctioning the Cash Credit limit.
Q. Where I can use money availed by Cash credit limit?
Ans. You can use the money to meet your working capital requirements and for business expansion purposes.
Q. Who can avail this facility?
Ans. All individuals, manufacturers, traders, retailers, distributors, companies, partnerships, sole proprietorships, LLPs, trusts, societies can apply for a cash credit loan.
Q. What is the difference between a business loan and cash credit?
Ans. Loan is a term loan offered by a financial institution at a defined interest rate to be repaid within specific tenure. Whereas, cash credit is a short-term working capital loan in the form of a credit limit offered by a bank to an enterprise.
Q. How is the loan limit calculated by banks?
Ans. The cash credit limit is calculated on the basis of the applicant’s profile, your relationship with the bank, financial stability of enterprise, repayment capability, and creditworthiness.