Cash credit loan is a type of short-term loan that is provided to businesses by financial institutions such as banks to cover their day-to-day operating expenses. It is a short term financial source for businesses with a tenure of 12 months which can be renewed upon request.
It’s a secured loan that is extended against the borrower’s current assets, such as their current account balance or inventory, which serve as collateral for the loan. The lender provides a line of credit up to a certain limit, and the borrower can withdraw funds up to this limit as needed. The borrower is only required to pay interest on the amount of the loan that they have actually withdrawn, rather than on the full amount of the credit line.
Cash credit loans are often used by businesses to cover short-term liquidity needs, such as purchasing raw materials, paying employees, or covering unexpected expenses. The quick and flexible nature of cash credit loans makes them a popular choice for businesses that need access to cash quickly.
Cash credit loans are useful for companies to smoothly run their businesses. Here are some of the key features of a cash credit loan:
Cash credit loans are typically availed by companies for working capital needs such as buying raw materials, paying wages, and meeting other day-to-day expenses.
Cash credit loans are secured loans which means the borrower is required to provide collateral such as raw materials, finished goods or any other inventory.
Cash credit loans are usually required to be repaid within a year or less, and the interest is payable only on the amount used/withdrawn and not the entire borrowing limit.
The borrowing limit depends upon the applicant’s creditworthiness and can withdraw loan multiple times up to the borrowing limit.
For cash credit loans, the repayment tenure or credit period is of up to 12 months. After 12 months, the cash credit can be renewed with the lender.
Overall, cash credit loans can be a handy source of finance for businesses that need to fulfill day-to-day operations.
Know cash credit loan eligibility requirements before applying. Here’s a checklist:
The documents required for a Cash Credit Loan may vary depending on the lender and the borrower’s profile. However, there are some common documents required for this loan:
A government-issued photo ID and an address proof is required, such as a bank statement or utility bill, of the borrower or the business owner.
The owner needs to provide proof of the existence of the business, such as GST certificate, PAN card, license, etc.
The lender will require the latest bank statements of the primary operating account for business.
The lender will require the latest financial statements of the business such as balance sheet, tax return, and profit and loss statement.
The lender will usually require documents related to collateral such as property deeds, or proof of ownership.
A proper business plan and a detailed profile of the business, including its history, products or services offered, and future plans are required by the lender
Note: The documents required may vary based on the lender’s criteria and the borrower’s profile.
If you are eligible to apply for a cash credit loan, follow these steps to apply:
It’s important to note that cash credit loans typically carry higher interest rates than other types of loans, as they are considered to be higher risk due to the lack of collateral. Cash Credit Loans interest rates range between 12% – 18% per annum.
The interest rate on the Cash Credit Loan vary depending on several factors such as –
It is advisable to compare offers from multiple lenders and choose the one that best suits your financial needs. And borrowers should always consider the loan amount, loan tenure, processing fees, and other charges before taking a loan.
Here’s a list of banks that offer cash credit loans:
Borrowers should always be aware of the terms and conditions of the loan, including repayment terms and any fees associated with the loan, before taking out a cash credit loan.
The choice between a Cash Credit Loan and a Cash Loan depends on your specific financial needs and circumstances. Cash credit loans are specifically meant for businesses to meet their expenses, meaning you are not allowed to use the loan amount for personal use. However, you can use a cash loan to meet any financial requirement – from paying your bills, travel expenses to meeting business costs. Also, with cash loans, you don’t have to pledge any collateral or provide a bag full of documents. So, it is advisable to compare the features and benefits of both loan types.
In conclusion, a Cash Credit Loan is a type of loan that is designed to provide short-term loans to finance businesses for their day-to-day operations. It’s a secured loan against collateral, such as property or equipment. However, you must compare different lenders on the basis of interest rate, eligibility requirements, and other fees and charges before applying.
Alternatively, you can apply for an instant Cash Loan to meet your business capital requirements. You can get loans up to ₹20 lakh at interest rate starting at 9.90% p.a. onwards in a 100% paperless manner. The entire loan process is online and hardly takes a few minutes – Download the Navi app, enter your personal, PAN and aadhaar details, check your eligibility then apply. and get the amount disbursed to your account within minutes.
A cash credit loan is a secured loan. In order to get a cash credit loan from a bank, companies must pledge collateral. Also, the loan tenure is up to 12 months.
Business owners, companies, cooperative societies, MSMEs, sole proprietorships, partnerships and Limited Liability Partnerships (LLPs) are eligible for a cash credit loan.
Cash credit loans can be repaid on a daily, weekly or monthly basis as per the agreement with your lender.
The limit on cash credit loans depends on the lender and the eligibility of the business. The limit is set by the bank from which companies can take loans to meet their working capital requirements.
The interest rate on a cash credit loan is charged on the daily closing balance and not charged on the total borrowing limit.
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