The better we know you, the more we can do. Ask about it, at work - Cash Credit

Cash Credit is short-term loan for a company to address 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 loan has repayment tenure of a maximum of up to 12 months that can be renewed. 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.

Key Features - Cash Credit Loan

• 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• Interest rate charged by the lender is on the money withdrawn and not on the total sanctioned limit
• Money can be withdrawn any number of times from the sanctioned limit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 loan is tax-deductible

How Cash Credit 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 The money can be withdrawn a number of times until the total sanctioned limit is reached.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, and creditworthiness. These factors are based on the borrower's company structure and its assets and liabilities.

Documentation - Cash Credit

• 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

Cash Credit Facility can be availed by Individuals, Professionals, Business Owners, Companies, Partnerships, Sole Proprietorships, Limited Liability Partnerships (LLPs) etc

Advantages - Cash Credit Loan
No Collateral required | Interest is levied on withdrawn amount | Interest paid is tax-deductible | Quick and easily available

Disadvantage - Cash Credit Loan
Higher interest rate | Short term loan | Difficult to avail by start-ups | Used mainly to address working capital requirements

Difference between Cash Credit & Overdraft
Cash Credit - Short term loan often used to address the working capital requirements for the Business | Inventory or assets are pledge | Account name is cash credit account or CC account
Overdraft - It allows to withdraw more than the credit balance available in respective accounts only up to a certain limit | May or may not have collateral - financial assets or physical assets may be pledged | Account type is current account

Key terms - Cash Credit Loan
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