What is Cash Credit?
Cash Credit, or CC refers to a short-term loan provided by banks for businesses to help them manage their working capital needs. It allows companies to borrow money, even without a credit balance, to fulfill their day-to-day operational expenses such as purchasing materials or paying suppliers. Also known as working capital loans, CC are borrowed by businesses to fund their emergency cash requirements or to purchase necessary assets.
The interest that is charged by the bank on the daily closing balance ensures that repayment of the amount is made only on the amount spent from the available limit. The time period for repayment of amount taken on credit is set at 12 or fewer months. The borrowing limit allowed to borrowers is based on factors such as past records of the organization, funds required by borrowers, their repayment capacity, current assets, and liabilities, etc.
Also Read: What Are Assets and Liabilities? Meaning, Types and Differences
Who is Eligible to Avail Cash Credit Facility?
- Individuals
- Sole Proprietorships/Professionals
- Partnership Firms
- Limited Liability Partnerships (LLPs)
- Registered Trusts
- Private Limited Companies
- Public Limited Companies
- Co-operative Societies
Documents Required for Cash Credit Facility
- Application form: Completed and signed
- PAN Card
- Identity and Address Proof: Identification documents of the business owners or key employees, such as Aadhar card, passport, or driver’s license.
- Bank statements: Bank statements for the past 6-12 months from the business’s existing bank accounts.
- Financial statements: Recent balance sheets, profit and loss statements, and cash flow statements for the past 2-3 years.
- ITR: Income tax returns for the last 2-3 years, including documents such as GST returns, if applicable.
- Business address proof: Proof of business registration, such as a certificate of incorporation, partnership deed, or registration documents for sole proprietorships.
- Collateral/ security details: such as inventory records, property documents, or receivables.
- Existing loan
Advantages of Cash Credit
- Effective Solution for Working Capital: Address working capital needs.
- Quick Access to Funds: Provides easy access to liquidity whenever required.
- Faster Processing: As a secured loan, cash credit typically involves quicker processing.
- Renewable Term: The facility often comes with a renewable tenure, allowing for continued access.
- Flexible Repayment Options: Provides businesses with the flexibility to withdraw and use funds as needed, up to the specified limit.
- Lower Interest Costs: Interest is charged only on the amount borrowed, not the total credit limit, reducing overall costs.
- Multiple Withdrawals: Allows multiple withdrawals from the credit line as needed.
- Tax Advantages: Interest payments on cash credit may be eligible for tax benefits.
