A cash credit loan, commonly referred to as a cash loan, is a kind of line of credit given by banks to a business or company against some form of security. While different banks name the product in their own way, the company can keep withdrawing the money till they reach the limit that has been set by the bank. This money can be used by the company to buy raw materials, goods, equipment and other items of importance.
Purpose of Cash Loan
Regardless of the sector in which they operate, running a business means a continuous transfer of goods and materials. All of this requires funds which should be transferred immediately to ensure production does not slow down. From time to time, a company will also need to invest in their tools and infrastructure – both for expansion as well as maintenance. There are also several other kinds of expenses that a business incurs in their day to day operations. Despite this need for liquid funds, most businesses regularly find that their funds are locked up somewhere in the chain. A dearth of immediate funds can severely impact a business, and too many disruptions can lead to major losses or even a breakdown in operations. A cash loan can be availed to plug the financial gap that companies often face. Credit, when used wisely and only when needed can help satisfy a variety of purposes. It can be used to buy raw materials, equipment, machinery, import and export costs, shipping, packaging, etc.
How Is Cash Loan Different From Other Loans
Cash loans specifically cater to businesses and their unique requirements. They are given with the intent helping a business grow, expand, or sustain itself. A security has to be given in order to avail this loan. The rate of interest is low and tenure can be long.
For most loans with a similar or comparable intent, a security may not be required. For instance, in unsecured personal loans, there is no collateral requirement. Also, such loans can be used for personal purposes such as education, weddings, medical emergencies, and other unexpected expenses. The interest rates may be high in case of unsecured loans. The loan tenures are also shorter.