If you need money for your business expansion or any other working requirements you can avail for a Cash Credit Loan. Basically in Cash Credit Loan a company can get money on the basis of collateral security and credit score.
What is a Cash Credit Loan ?
A Cash Credit Loan is a type of short-term loan for a company to fulfill its working capital requirements. In short, Cash Credit Loan is a loan which is extended to a company by a bank. Banks offer loans to a company depending on its credit history. A company withdraws money from a bank account without keeping a credit balance.
What are the different purposes to take this loan ?
A borrower or a company can take this loan for different purposes such as :
- Business expansion
- Buying real estate
- Buying plant and machinery
- Purchasing raw material
- Increasing stock
- For hiring new staff
- paying salaries
- For trainings
What are the Features of Cash Credit Loan ?
The key features of cash credit loans are :
- Cash Credit Loan is a secured type of loan i.e, loan is provided against some collateral (security). Collateral can be stock, assets or any financial instruments but there value should be more than the loan amount.
- This loan is used to fulfill the daily requirements of your business.
- It is a short-term loan.
- The repayment period for this loan is up to 12 months.
- Interest rate depends on the money withdrawn and not on the sanctioned credit limit.
- There are no restrictions on the number of withdrawals.
- This can be repay in the form of a monthly, quarterly or half-yearly basis.
- This loan is sanction according to the turnover of a company.
- Higher limits can be avail by a company or borrower with a good credit score.
Documents Required :
- Colored photograph of an applicant.
- ID Proof : Pan Card/ Passport/ Driving License.
- Security papers.
- Residential Proof : Passport/ Voter ID Card/ Driving License.
- Sales Tax registration certificate.
- Income Proof : Last 3 years audited financial documents and last 6 months bank statements.
- Details of existing loans.
- Valid trade license.
- GST registration certificate.
- Constitution Proof : MOA/ Partnership deed.
Who Can go for a Cash Credit Loan ?
This loan can be avail by individual, professionals, business owners, company, partnerships, LLPs, or any trust.
Advantages and disadvantage of Cash Credit Loan :
|This loan helps to fulfill the daily working requirements of the company.||Interest rates are high.|
|This loan is easily available by the bank if the collateral security is available.||A minimum charge is also imposed while taking this loan.|
|It can be withdrawn any number of times within the given time limit.||Since it is a business loan, paperwork is very lengthy here.|
|Tax deductible interest rate.||Startups can find some difficulty to avail this loan.|
|No credit score check is needed.||Repayment period is very less.|
How Cash Credit works ?
In Cash Credit a borrower can withdraw money from the bank account. The money can be withdrawn from the bank account any number of times till the given limit is reached. The limit can be determined by the bank or lender depending on the borrower’s credit score, profile etc. The interest rate is also charge by the bank and it again depends on the collateral offered and credit score of an applicant.
Interest rates of Cash Credit :
Rate of interest for cash credit changes from bank to bank and it also depends on the applicant’s credit score and financial conditions.