What is a Cash Credit Loan and How to Apply for it? (2024)

What is a Cash Credit Loan?

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 The borrower is only required to pay interest on the amount of the loan that they have actually withdrawn, rather than on the full amount of the credit line.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.

Features of Cash Credit Loan

Cash credit loans are useful for companies to smoothly run their businesses. Here are some of the key features of a cash credit loan:

1. Purpose of 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.

2. Collateral

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.

3. Interest Rate

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loans are usually required to be repaid within a year or less, and the interest is payable only on the amount used/withdrawn and not the entire borrowing limit.

4. Borrowing Limit

The borrowing limit depends upon the applicant’s creditworthiness and can withdraw loan multiple times up to the borrowing limit.

5. Repayment Tenure

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.

Cash Credit Loan Eligibility Criteria

Know cash credit loan eligibility requirements before applying. Here’s a checklist:

• Age: The minimum age of the business owner should be 25 years. However, it varies from lender to lender.
• Entities: Business owners, companies, co-operative societies, MSMEs, sole proprietorships, partnerships and Limited Liability Partnerships (LLPs).
• Time in Business: Most lenders require that a business has been in operation for a minimum period of time, usually around 2-3 years.
• Credit History of Business: The lender will typically check the business’s credit score and review its past credit history to determine its ability to repay the loan.
• Financial Statements: Lenders usually require the business to provide financial statements such as balance sheets, profit and loss statements, and tax returns.
• Collateral: Some lenders may require the business to put up collateral, such as inventory or equipment, to secure the loan.
• Revenue and Cash Flow: The lender will typically consider the business’s revenue and cash flow when determining its eligibility for a cash credit loan.

Documents Required for Cash Credit Loan

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:

1. Proof of Identity

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.

2. Business Proof

The owner needs to provide proof of the existence of the business, such as GST certificate, PAN card, license, etc.

3. Bank Statements

The lender will require the latest bank statements of the primary operating account for business.

4. Financial Statements

The lender will require the latest financial statements of the business such as balance sheet, tax return, and profit and loss statement.

5. Collateral Documents

The lender will usually require documents related to collateral such as property deeds, or proof of ownership.

6. Business Profile & Details

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.

How to Apply for a Cash Credit Loan?

Interest Rate on Cash Credit Loan

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 –

• The loan amount
• Lenders creditworthiness
• Loan tenure and
• The Lender

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.

Cash Credit Loan Offered by Leading Banks

Here’s a list of banks that offer cash credit loans:

• HDFC Bank
• Bank of Baroda
• Kotak Mahindra Bank
• Punjab National Bank
• Axis Bank

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.

Should you take a Cash Credit Loan or Cash Loan?

The choice between a Cash Credit Loan and a Cash Loan depends on your specific financial needs and circ*mstances. 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.

Final Word

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.

FAQs