FEATURE & BENEFITS
Cash Credit and Overdraft Difference
Working capital is necessary to keep any business running. That is where finance comes in handy. Two types of short-term loan facilities are Cash Credit and Overdraft. It may give you an immediate boost, whereas long-term options like LC, BG, factoring, and business loans will help you in planning for the future. Besides cash credit, banks offer two types of short-term loan facilities to businesses. This facility is also provided to individuals, based on their relationship with the bank. Let’s learn the difference between cash credit and overdraft facility.
Bank Overdraft Facility
OD is an overdraft facility by which a bank allows the customer to borrow a certain amount of money. There is interest on the loan and there is usually a fee per overdraft. Therefore, Overdraft facility is providing current accounts to customers. Thus, the customers can withdraw the funds even if the account has zero balance.
OD is like any other loan. The account holder pays interest on it and will normally be charged a one-time insufficient funds fee.
There are various kinds of overdrafts:
1. Standard Overdraft
Standard Overdraft is withdrawing more funds than the account limit. So, the bank that permits overdrafts normally charges you a small fee for the service.
2. Secured Overdraft
It resembles a traditional Loan. When the financial institutions advance credit a greater proportion of collateral is utilized to raise the funds.
3. Overdraft Clear
In this no different security is involved but the overdraft is sanctioned based on the net worth of the person.
CC Facility
Cash credit is more often granted to the companies rather than to the individual consumer. The cash credit can be availed for routine banking activities within the limit of credit limit.
Thus, in the following situations, CC can be used to meet the working capital gap:
Procurement of raw materials
Inventory stocking
Financing, sales and other activities
Warehousing and storage, etc.
Rent, electricity, bills, etc.
