Cash Credit Loan: Meaning, Benefits, Eligibility & How to Apply

What is Cash Credit Loan?

Cash credit is a type of loan that is offered by banks, and NBFCs to quench the immediate financial thirst for working capital or for the growth of the business. This is a short-term financing option available to satisfy the financial needs of a growing business. This type of loan is not a burden on your shoulders but rather it shall prove to be a wiser decision for your business.

In simpler words, the meaning of cash credit is a short-term source of finance given by banks and NBFCs with a tenure of up to 12 months. A cash credit loan enables businesses to take out as many cash advances as they need, up to the pre-determined borrowing limit, from their bank account. However, the interest is only charged on the amount borrowed and not on the entire borrowing (credit) limit.

What Are the Considerable Factors for A Cash Credit Loan?

Mentioned below is the list of factors that are considered by lending institutions for cash credit loans.

Funds required by the borrower
Past track record of the borrower
The credit profile of the borrower
Current assets and current liabilities of the business
Repayment capacity of the borrower
Collateral/security provided in exchange for a cash credit facility

When to Opt for The Cash Credit Loan?

Cash credit loans can be utilized by the borrower in various ways to satisfy financial needs. A cash credit loan is a simple solution that can help in the growth of a business in the following ways.

Buying raw materials, stores, fuel, etc.
Financing Sales
Paying labor wages
Power charges for the borrowers
Storing goods

Important Features of Cash Credit

Mentioned below are the exclusive features of the cash credit loan that can benefit the applicants.

Borrowing Limit: The borrowing limit of the applicant depends on the creditworthiness of the applicant. The higher the credit score of the applicant greater the chances of getting a credit cash loan. Boost the CIBIL score and increase the chances of getting a loan.
Interest: The interest for the credit cash loan is charged only on the withdrawn amount and not on the borrowed amount.
Minimum Commitment Charge: The applicant will be charged a minimum amount irrespective of the loan amount used.
Collateral Security: The secured cash credit loan will be approved against the stocks and assets.
Credit Tenure: The tenure period of the cash credit loan is 12 months.

Advantages of Cash Credit

The advantages of the cash credit loan are mentioned below.

As long as the loan value is established and collateral is pledged, the bank can readily arrange for a cash credit loan.
You have the freedom to take out money from your accessible cash credit loan as often as you'd like, up to the loan's withdrawal cap.
When you have extra money, deposit it to reduce the cost of interest.
Your credit cash loan's interest payment is tax deductible.
The cash credit interest rate is applied only to the borrowed amount.

Disadvantages of Cash Credit

Every coin has two sides, hence cash credit also has certain disadvantages that borrowers should consider before applying for cash credit.

A Cash Credit loan is a short-term loan, though the loan is renewed after a certain period of time the terms and conditions are also changed. Apart from this, the interest rate of cash credit is also high compared to other loans like business loans.
The newly established companies might face certain difficulties in availing of the cash credit loan as the loan is granted based on the proven performance of the company.
The minimum charge should be paid by the company irrespective of whether the credit is utilized by the organization or not.

Eligibility Criteria & Documents Required for Cash Credit

Financial institutions give cash credit facilities to satisfy the financial needs of a business or an individual on the amount available in their account at the interest charged on the funds borrowed. Below are the eligibility criteria for loan and the documents required for availing credit cash.

Eligible Criteria for Cash Credit

Individuals
Co-operative Societies
Sole Proprietors/Professionals
Private limited Companies
Partnership Firms
Public Limited Companies
Registered Trusts
Limited Liability Partnerships

Documents Required for Cash Credit

Application form with passport size photograph.

KYC Documents.
Last 6 months banking statements for income proof.
Business address.
Business PAN Card.
Ownership proof of the business.
Security and collateral documents.

How to Apply for Cash Credit?

Apply for cash credit easily with three easy steps.

Apply online for cash credit on www.mymudra.com
Get the documentation done online.
Get the loan approved and disbursed within a day.

Conclusion

My Mudra cash credit facility is a helping hand for you to quench your financial thirst easily. Ace up your business without worrying about money in hand. My Mudra is a one-stop solution for you to satiate your hunger for finance. We are here to change the perspective of people who are taking loan as a burden with loans as planned decisions. Get to know your eligibility for a loan and achieve your dreams.

Also Read:
- Credit Utilisation Ratio - How to Calculate & Reduce
- Difference between Fixed Capital and Working Capital

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What is Cash Credit?