A cash credit loan is a working capital loan offered to businesses by banks and non-banking financing companies. When an organization faces a challenging cash crunch situation wherein they do not have enough money for daily operations, it should immediately consider applying for a cash credit loan. As with other loans, cash credit interest rates exist and are based on the credit history as well as the financial standing of the business.
Any Indian citizen who resides within India, aged between 24-70 years and has been running the business for a minimum of 3 years, can apply for a cash credit loan. They need to provide all the relevant documents to the financial institutions. Upon verifying the eligibility criteria as well as submitted documents, the lender approves a certain limit of borrowing. The applicant can then withdraw funds within that limit, as and when he/she requires.
Cash credit loans are offered in exchange for no collateral, yet, stock or raw materials may be hypothecated to the lender. Another advantage is that cash credit interest rates are changed only on the amount actually withdrawn, not the full sanctioned limit. But the loan is usually available only for a short period of 12 months, which is extendable only for a short period. Not just that, cash credit loans are approved largely for the purpose of meeting any working capital needs of a business and rarely for any other purpose.
A business must keep all these things in mind while considering cash credit loans.