Short-Term Loan:
Cash credit is a short-term loan facility with a repayment period of up to 12 months. This short-term nature makes it ideal for meeting immediate and recurring financial needs within a business cycle.
Interest on Withdrawn Amount:
Interest is charged only on the amount actually withdrawn from the sanctioned limit, not on the entire approved credit limit. This feature helps in reducing the overall interest burden on the business, making it a cost-effective borrowing option.
Flexible Withdrawals:
Businesses can withdraw funds multiple times as needed, provided they stay within the sanctioned credit limit. This flexibility allows businesses to manage cash flow more effectively, addressing financial requirements as they arise.
Collateral Requirement:
To secure a cash credit facility, businesses must provide collateral or security. This typically includes hypothecating assets like stocks and receivables, and sometimes additional collateral such as property or equipment.
Higher Limits for Better Credit Scores:
Businesses with higher credit scores and strong repayment histories are eligible for higher cash credit limits. This means a business must maintain good financial discipline and creditworthiness.
Turnover and Volume Consideration:
Banks and financial institutions assess the business’s turnover and volume when determining the sanctioned limit. Higher turnover and volume can lead to higher credit limits, reflecting the business’s capacity to generate revenue.
Flexible Repayment Options:
Borrowers can choose to repay the borrowed amount through various repayment schedules, including monthly, quarterly, or half-yearly instalments. This flexibility allows businesses to align repayments with their cash flow patterns.
Cash Credit Against Fixed Deposits:
Individual borrowers can avail of cash credit against their Fixed Deposits. This provides a convenient borrowing option for individuals who have substantial savings in Fixed Deposits but need immediate liquidity.
Recall on Short Notice:
The lender reserves the right to recall the sanctioned amount on short notice. This feature ensures that the lender can manage their risk exposure effectively, although it requires the borrower to be prepared for such eventualities.
Tax-Deductible Interest:
The interest paid on cash credit is tax-deductible, providing a financial benefit to the business. This tax advantage can lead to significant savings, reducing the overall cost of borrowing.
