Cash Credit Loan

What is a cash credit loan - Cash Credit is a short-term loan or finance for a business to cover its working capital needs. A bank would make a loan to a business based on its credit history and financial viability. Cash credit loans can be used for a variety of commercial goals, including business expansion, purchasing plant and machinery, purchasing raw materials, increasing stock, hiring personnel, paying off salaries, undertaking training, debt reduction, and so on. Cash credit has a loan repayment term of up to 12 months, which can be renewed.

Features of the Cash Credit Loan

• A cash credit loan can be used to cover a company's working capital needs.
• To obtain a cash credit loan, the borrower must offer collateral or security.
• The borrower pays interest only on the loan amount, not on the credit amount approved.
• The borrower will be able to return the loan on a daily or weekly basis or according to the repayment arrangement devised by the lender.
• A cash credit loan is a short-term loan that can be repaid monthly or quarterly, depending on the lender.
• The applicant may withdraw the required amount sanctioned by the bank in order to meet their day-to-day demands.
• The bank issues a checkbook in the name of the corporation, from which the latter can withdraw the appropriate amount.

Cash Credit Loan Interest Rate 2024

The interest rate for obtaining a Cash Credit loan varies from bank to bank and may alter from time to time, depending on the applicant's creditworthiness and financial history.

Cash Credit Loan Eligibility

The following are some of the eligibility criteria established by lenders for cash credit loans:

• Most lenders demand the business owner to be at least 25 years old. This criterion, however, is likely to differ among market lenders. You may need to contact the company to find out the age limit for this loan.
• Some lenders require that businesses produce IT reports for at least one year. This documentation must be provided to the lender when applying for a loan.
• Working capital loans are available to sole proprietorships, partnerships, publicly traded enterprises, limited liability companies, and other entities. Some lenders place limitations on the types of businesses that can qualify for working capital loans. You can get additional information about this from the lender.
• This financing requires a minimum of three years of business history. The amount of years a firm has been in operation is referred to as its vintage. This criterion is also likely to differ among market lenders. Some lenders make loans to businesses with only one year of operation.
• To be eligible for a cash credit loan, the borrower must furnish collateral. Most businesses accept real estate as collateral for working capital loans. Other assets, like inventories, work-in-process goods, raw materials, and so on, can be pledged as security to get this loan.

Documents Required to Obtain Cash Credit Loan

To obtain a cash credit loan, the applicant must submit the following documents:

• A CA has certified the financial statements.
• Other documents as asked by the bank.
• Bank statement for at least six months.
• IT will be back for at least a year.
• Record of loan repayment (if applicable).
• Evidence of collateral.

Advantages of a Cash Credit Loan

• Working capital requirements can be easily met.
• Since this is a secured loan, processing, and sanction are quick and simple.
• Cash credit loans are available as an overdraft facility or as a term loan.
• The lender and borrower might agree on terms.
• Bank guarantees are provided to meet performance and financial obligations.
• Only interest on monies withdrawn and for the period used must be paid.
• If the promoters' or company's (applicant's) credit history is strong, favorable loan rates can be negotiated.
• The payment period is flexible and might be monthly or quarterly.