Cash Credit Loan

A cash credit loan gives you flexible access to funds whenever your business needs working capital. Instead of receiving a lump sum, you can withdraw money within a set limit and pay interest only on what you use. This makes it an effective choice for managing day-to-day expenses, handling seasonal demand, or bridging short-term cash gaps. By understanding how cash credit works, its features, and the conditions involved, you can decide if it is the right option for your financial needs.

A cash credit loan is a short-term financing option that helps businesses manage cash flow during tough times. If your money is tied up in inventory or you’re facing a sudden cash shortage, a cash credit loan ensures your operations keep running smoothly.

This type of loan is typically secured against collateral, such as property or inventory. What makes it unique is that you don't need to maintain a credit limit like other types of loans. You can borrow as needed, up to a pre-approved limit, and only pay interest on the amount you actually use.

For example, if your credit limit is ₹10 Lakhs but you borrow only ₹2 Lakhs, the interest will only be charged on ₹2 Lakhs. This makes it a flexible and cost-effective option for businesses needing short-term funding.

The amount of credit and the interest rate offered will depend on your eligibility. It’s important to check these details before applying, so you can make an informed decision based on your business’s needs.

A cash credit loan works like an open line of credit that allows businesses to borrow funds as needed. Here’s how it typically operates:

Set Credit Limit

The lender approves a maximum credit limit based on your business's financial health and collateral. This is the highest amount you can borrow, but you only need to take what you need.

Access to Funds

Once approved, you can access the funds at any time within the set credit limit. This provides flexibility to borrow whenever you face cash shortages or need working capital.

Interest on Amount Borrowed

Interest is only charged on the amount you borrow, not the full credit limit. For example, if you borrow ₹2 Lakhs from a ₹10 Lakh limit, interest is only calculated on ₹2 Lakhs.

Repayment

You repay the borrowed amount as per the agreed-upon terms, usually within 12 months. Once repaid, the amount becomes available for borrowing again, offering flexibility for ongoing needs.

Collateral

Cash credit loans are typically secured loans, requiring you to pledge collateral. This could be property, inventory, or other assets that secure the loan against potential default.

Here are the key features and benefits of a cash credit loan that provide businesses with flexible funding to manage cash flow and ensure smooth operations:

Easy Access to Funds

A cash credit loan provides easy access to funds, helping businesses keep operations running during tough times.

Flexibility in Borrowing

You can access the funds whenever needed, providing flexibility to meet short-term financial requirements.

Borrow Only What You Need

You only borrow the amount you need and can withdraw funds multiple times as required.

Interest on Borrowed Amount

Interest is charged only on the amount you borrow, not the entire credit limit.

Secured Credit Facility

The loan is secured against assets like stocks, receivables, or liquid securities, providing safety to lenders.

Short Repayment Tenure

Cash credit loans typically come with a short repayment term, generally up to 12 months.

Limit Based on Creditworthiness

The borrowing limit is determined based on your business's creditworthiness, ensuring fair access to funds.

Quick Approval and Disbursal

Cash credit loans often come with faster approval and disbursal, helping businesses meet urgent cash flow needs without delays.

Revolving Credit Facility

Once repaid, the amount becomes available for borrowing again, offering a continuous source of funds without the need to reapply.

No Restriction on Usage

The loan can be used for various purposes, including working capital, purchasing raw materials, or covering overhead costs, providing great flexibility.

Easy to Manage

Since cash credit loans are typically short-term, businesses can manage them more easily compared to long-term loans with heavier commitments.

Lower Processing Fees

Cash credit loans generally have lower processing fees than other forms of secured lending, making them a more cost-effective option.

The interest rates and charges on a cash credit loan vary depending on several factors, including your business's credit profile, financial stability, and the lender's policies. Lenders typically assess your creditworthiness, the collateral provided, and your repayment history to determine the loan's terms.

Interest rates can range from 14% to 30% per annum, with rates often being higher for borrowers with lower CIBIL Score or unsecured loans. Additionally, processing fees, which typically range from 1% to 6% of the loan amount, may apply and are often subject to GST.

It’s important to compare the rates, fees, and loan terms across lenders to find the best option for your business needs. Always check the eligibility criteria, as the loan limit and terms may vary depending on the lender and the financial profile of your business.

Here are the key eligibility criteria for a cash credit loan to help you understand what lenders typically look for:

• Your business should have a stable financial track record

• A good credit score is essential for loan approval

• Lenders may require collateral, such as property, inventory, or receivables

• Your business must be operational for a certain number of years (usually 1-2 years)

• Lenders will assess your business's cash flow and revenue stability

• The size of the loan you can receive depends on your business's creditworthiness

• Some lenders may require a personal guarantee from the business owner

Here are the simple steps to apply for a cash credit loan and secure the funds you need for your business:

1. Gather all necessary documents, such as identity proof, financial statements, and collateral details

2. Choose a lender that offers suitable terms and conditions for your business needs

3. Fill out the loan application form accurately with all required business details

4. Submit the completed application along with the required documents to the lender

5. The lender will review your application and assess your eligibility based on your creditworthiness and collateral

6. If approved, you will receive the loan offer with the credit limit, interest rate, and repayment terms

7. Accept the offer, sign the loan agreement, and submit any additional information if required

8. Upon approval, the loan amount will be disbursed to your business account

Here are important factors to keep in mind when applying for a cash credit loan to ensure you make an informed decision:

• Evaluate the exact loan amount you need to avoid borrowing more than necessary

• Compare interest rates from different lenders to secure the best possible rate

• Be prepared to offer collateral, such as inventory or property, as cash credit loans are generally secured

• Assess your business’s ability to manage the loan repayment within the short-term duration (typically up to 12 months)

• Understand how the credit limit is determined and ensure it meets your business needs

• Review any processing fees or additional charges that may apply to the loan

• Choose a lender that provides flexibility and easy access to funds when required

• Research the lender’s reputation and customer service for a smooth borrowing experience

• Be mindful of the risks associated with over-borrowing and ensure that repayments can be met without financial strain

Reference of all T&C necessarily refers to the terms of the Partners as regards to pre-approved offers and loan processing time amongst other conditions.