What is A CASH CREDIT loan ?

A cash credit loan has both its advantages as well as disadvantages.

I was not having any knowledge of CC limit or cash credit account in my early days .But when I applied for my business loan I came to know about it

A cash credit account in simple terms is a loan account account under which you get a certain fixed limit of credit balance to utilise in your business ,based on your business turnover ,stocks and debtors.

It is a short term credit facility , basically to meet the day to day working capital requirements of small buisnesses as well as MSME.

But it is also used for business expansion, buying plant and machinery, purchasing raw materials, enhancing stocks, hiring staff, paying-off salaries, etc. Cash credit has to be renewed every 12 month.

I have also used a cash credit limit in my business. I also know many business units continuously using this facility year after year.They simply renew the limit every year .

How cash credit account operates?

In a cash credit account the bank credits the entire sanctioned loan amount to the borrower cash credit account to use in his business.Now the borrower starts spending the money from the cash credit account according to his requirements.He can use as much funds as he wants until it reaches its sanctioned limit.He will be charged interest every month on the amount of funds he has utilised.

So a borrower must use his cash credit limit wisely and immediately deposit whatever receivable he get in cash ,cgeque or bank transfer to his cash credit account to minimise the interest charged by bank.

How much interest on cash credit loan?

The interest charged by bank on cash credit loan is different from banks for bank and schemes to schemes under which the credit has been given.

If its a loan granted to a MSME unit like us than generally presently 10.75% is charged annually. If its a trading concern not having udyam registration than high interest will be charged.

Interest charged will also depend on your credit rating or CIBIL SCORE If you have a CIBIL SCORE of 750 or above you can be charged lower interest rates.

Interest in calculated on daily basis in a cash credit account. So an entrepreneur must deposit whatever cash in hand he gets into his cash credit account to minimise the interest charged.

The banks also charges yearly renewal charges in the time of renewal of cash credit limit.

The main advantage of cash credit loan.

The main advantage of cash credit loan is its flexibility in use.You can use as much funds you need as per requirement .Interest will be charged only on the total outstanding amount. It will reduce your cost of working capital loan.

Another advantage of cash credit is that it is generally offered to any existing business enterprise on the basis of its turnover or stock maintained in its possession without any other collateral demand by banks.

The main disadvantage of cash credit loan.

The cash credit loan has also its few disadvantages such as it is not generally offered to new business enterprises.

Since its a loan based on the yearly turnover and stocks , a new enterprise can face difficulty in getting it.

But i have availed this cash credit facility for my new enterprise in my early days.So if you can convince the banker you can get it.

Another disadvantage of cash credit is the monthly interest and renewal fees charged annually.

Monthly interest charged is ok but the annual renewal fees is really very high and its hurts the MSME financially.

Ultimately we can say that the cash credit loan has more advantages than disadvantages and a MSME unit or any other business enterprise can use it wisely to infuse the much needed liquidity in its business.