Category: Cash Credit

What is Cash Credit Loan and How Does it Work?

About the Loan:-

Cash Credit Loan is basically a cash loan which is provided to any business entity or company so as to meet it’s financial requirements, thus minimizing the working capital gap.  This source of finance is facilitated for a short term for about 12 months. Any company which goes for such loans can withdraw the money from the bank account whenever it is required within the fixed withdrawal limit. For the grant of the loan, it is important that it is pledged against stock and assets of the company.

There are a number of factors which decides the borrowing limit of CC Limit Facility such as the creditworthiness. It essentially depends on the structure of the company, current assets and liability. Interest is charged only on the amount of money that is being borrowed irrespective of the borrowing limit. Such type of loans can be utilized for various purposes like purchasing raw materials, payment of the wages for the workers and labourers, sourcing money for the purpose of sales.

What Are The Merits and Demerits of Cash Credit Limit Loan in Delhi?

Cash Credit Limit Loan In Delhi

Merits:-

  • It is easy and convenient for the bank to provide cash credit loan till the time collateral security remains, and value of the loan is determined.
  • There is a flexibility to deposit money as and when you have surplus funds, to lower the burden of interest.
  • It can be used for something that will bring a return on your investment. For instance, home improvements. The loan may be availed in the form of a particular deposit amount. There is also a provision of receiving line of credit with a cash-secured credit card.
  • In order to make use of such loan, you can borrow from the same bank where you would have deposited money in a saving account or certificate of deposit. In this case, the lender need not worry much while approving the loan since the risk involved is low.
  • In those situations where the credit scores are less, you might even be able to avail better rate with these loans than with the unsecured loans.

Using the Cash Credit Loan to Build Credit

  • If your primary goal is rebuilding your credit, you need to make sure the loan works in your favor.
  • You can choose to go for a lender that effectively report payments to the credit bureaus. This would be necessary for the changes in the credit scores.
  • You must also check the credit intermittently to verify that the payments are reported.
  • Paying on time is crucial to stay away from the harm that the late payments can cause and thus, make you suffer financially further as a result of it.

Apart from the several benefits, there are few shortcomings related to these type of loans too.

Demerits:-

  • A company cannot depend on it for a longer period of time, since it is a short term loan and usually businesses are in need of loans over and over again.
  • New companies can have difficulty obtaining this loan as the approval depends on payment of the minimum commitment charge regardless of whether the company utilizes the cash credit or not.

Conclusion:-

CC Limit Facility

Even with a few downsides, going for Cash Credit Limit Loan in Delhi would be a wise decision. The individual applicants too can avail this type of loan facility against their fixed deposits as a loan and save on interest. The application of such loans is best in the situations of urgency, thereby, it can be a life savior in the complex financial scenario.

For any help with loan related to CC Limit Facility, you may get in touch with the skilled professionals, who deal with these financial aspects.

The Relationship of Cash Credit and Business

Every business irrespective of the scale faces critical financial problems that occur due to the shortage of working capital. Entrepreneurs find they exhausted and worked up in search of money to keep their business on track. To cater to the sudden shortage of money, banks have come up with credit limit, called as cash credit. A current account is the cash credit account which business people use to meet any sudden financial crises.

What is Cash Credit?

It is a short-term loan that is offered to the company by the bank. This arrangement enables the company to withdraw a certain sum of money from a bank account with no credit balance stress. Interest is charged on the amount borrowed. To understand cash credit better, consider an example of a business, where the owner invests his money to purchase raw materials. The business owner’s investment in goods doesn’t start to immediately yield results. Even after the raw materials are converted to finished product, it takes time for the product to reach the market. After reaching the market the product doesn’t immediately contribute to return in investment. The capital still exists in the form of inventories the situation worsens when the business people suddenly find themselves stuck with the loss of funds or the working capital to purchase more raw materials. In order to cater to the businesses’ need for capital, banks deploy cash credit facility.

Features of Cash Credit that business people must know before opting for it

  • Business owners can’t opt for credit limit from more than one bank. Once you have availed it from a bank you can’t opt for any other bank.
  • The stock statement is a must to submit, as this shows stocks, creditors, debtors, and balance on a monthly basis.
  • Prior to CC if you have opted for any other loan, then you must inform about the same to the cash credit banker.
  • Collateral security helps uphold the cash credit facility.
  • It is also under the norms of some that the name of the bank that has agreed to grant its CC facility must be placed ad hung on the premises of stock of client.
  • Stocks and receivables once hypothecated to the CC banker can’t be hypothecated anywhere else.
  • The bank holds the authority to hold periodic inspections of business and stocks, these inspections include financial audit, stock audit, compliance of returns to the bank, etc.

When entrepreneurs wish to expand the business, they look out for cash credit facility. There are certain calculations that are incorporated by the bank to fix the cash credit limit. The bank checks both, stock and the receivable of the company. The assessment is then attempted to match the cover period. Based on all the assessment and preemption, the bank fixes the cash credit limit for the business.

Advantages of Cash Credit

  • Cash credit is a great source for business people to help meet sudden financial crises so that the business activity doesn’t stop.
  • Interest is charged basis the amount is withdrawn and not the entire limit, this helps lower the interest cost.
  • The principal amount is required to be repaid since there exists no monthly installment payable.
  • The credit line can be used by the businessmen in case of emergency, as an amazing standby option.
  • The cash credit acts as a temporary source of raising fund, which can act as an alternative to capital deployed. This helps business people avail hassle free capital amount.
  • Business people benefit from this arrangement, as this acts as supporting hand to help them carry out their day to day business activity.

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