Such cash inflows and outflows come in the form of working capital. Businesses usually take working capital loans to meet their daily cash requirements. One such type of working capital loan is a cash credit loan. Let’s know more about it in this post!
What is Cash Credit?
Cash credit is an overdraft facility that allows a business to withdraw money from a bank account. It is until the total sanctioned limit is reached. The cash limit is set by the lender based on certain parameters. A cash credit loan is a working capital loan taken by a company to meet its working capital requirement.
It can be used for various business purposes like the expansion of the business, purchase of a new plant. It can also be used for machinery, inventory purchases, payment of salaries to staff and more.
What are the features of a cash credit loan?
1. Loan tenor
A cash credit loan is a short-term loan with a fixed repayment period. You can withdraw funds from the pre-sanctioned limit at any time and pay interest on the same.
2. Collateral guarantee
This loan can be availed in the form of a secured or unsecured loan. You can borrow only up to the sanctioned limit from the lender. Some money lenders provide a cash credit loan for a significant amount. It is without pledging any asset or security as collateral against the loan. However, you have to submit a collateral guarantee to avail of this loan in some cases. The collateral can be in the form of fixed assets, inventory, property and more.
3. Minimal documentation
A cash credit loan can be availed with minimal documentation and a simple eligibility procedure. You can also apply online for this loan with a quick loan application process.
4. Interest rate
The interest rate on this loan is always charged on the amount withdrawn and not on the limit sanctioned by the lender. Such loans are generally offered with an overdraft facility.
5. Purpose of loan
This loan is generally used to meet the working capital requirements of the business. You can use the loan amount to purchase fixed assets, expansion of business and raw material procurement. It can also be used for debt settlement, inventory costs, overhead costs like salaries or rent, and the like.
Eligibility conditions to avail of a cash credit loan
Age of the borrower – You must be between 25 years and 65 years of age.
CIBIL score – A CIBIL score of 750 and above is required to avail of the loan.
Business vintage – You must own a business with a minimum vintage of 3 years.
Financial proof – You must have filed income tax returns for your business for a minimum of 1 year.
Documents required for applying for a cash credit loan
Identity proof – Identity cards like Aadhaar card, PAN card, Voter ID, etc.
Address proof – Rent agreement, electricity bill, telephone bill, etc.
Ownership proof – Depending on the business type, you need to submit a proprietorship document or ownership deeds of your company.
Cash credit loan facility can be availed by all individuals, sole proprietorship, LLPs, and other forms of business organizations.
You can use it conveniently for several financial requirements of your business. Its easy application process and simple eligibility criteria make it viable for all businesses.
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