Every business of the modern day requires consistent cash inflows to run the daily operations. Therefore, only scheduled banks provide business owners with cash credit loans to preserve their smooth operations. Cash credit loans are the ideal option to help businesses maintain their working capital requirements. An in-depth look into the process of how to apply cash credit loan in bank will make every entrepreneur who are into business especially under manufacturing and trading sector to equip the businesses and companies with uninterrupted working capital required for meeting the regular operational expenses like purchase of raw materials, payment of salaries and wages to staffs and labourers, maintenance of plant and machineries, debt consolidation etc.
The borrower can use the cash credit limit in routine financial transactions up to the mandated borrowing limit. The cash credit loan is linked with the accounts those are unique as they do not keep credit balances, and interest is charged based on the amount withdrawn depending upon the drawing power so provided.
What are the criteria for the lender banks to assess a Business for a Cash Credit Loan?
Cash credit loan like any other short-term working capital loan for businesses must have to fulfil the basic requirements for qualification. Banks share some eligibility criteria involved in the administration of cash credit loans.
1.Most lenders have a minimum age limit of 25 years for business owners. However, this can vary. It is important to contact the preferred lender bank with whom the business is having its current account to confirm the minimum and maximum age limit required for applying for cash credit limit facility.
2. The business vintage is scrutinized during the approval process. A business should be in operation for at least three complete years. Different lenders accept different vintages. Some banks offer cash credit loans particularly to proprietorship firms with a one-year business vintage under various start up schemes of Government of India.
3. The company type is also taken into consideration. The company type may be a limiting factor as it could restrict some companies from applying. Generally, proprietorship firms, partnership firms, publicly traded firms, limited liability firms, and others are approved for cash credit limit facilities as short-term working capital loans. Business owners should contact the lender bank to determine if their company is eligible for working capital loans with good creditworthiness and credit track records.
4.For cash credit loans lender banks always prefer companies that have filed income tax returns at least for the last three years and are willing to provide this proof during the application process.
5.Applicants must also provide security collateral which varies from stocks to assets. Assets include raw materials, inventory, and partially completed goods. Most lenders accept real estate properties like self-owned residential or commercial or industrial properties as collateral.
6.GST returns are required to be submitted for the last one year by the borrower for the assessment of the top line as filed under for the income tax.
7.GST returns are required to be submitted for the last one year by the borrower for the assessment of the top line as filed under for the income tax.
What are the documents required to obtain a Cash Credit Loan from Bank?
Businesses need to submit the documents required by lenders as a part of the CC loan application process. These CC loan documents may vary from one lender to another but typically include the following:
1.Proof of identity and address of the business owner, like their Aadhaar card, passport, voter’s ID or utility bill
2.Proof of the existence of the business, like its incorporation documents, PAN card, GST certificate, trade licenses, Udyam Aadhaar Registration.
3.Recent bank statements of the business to provide proof of income.
4.Latest financial statements of the business including its profit and loss account and balance sheet.
5.Recent income tax returns (ITRs) of the business entity.
6.A detailed business profile and business plan.
7.Documents related to the collateral offered.
How to apply for a Cash Credit Loan?
The exact process to apply for a cash credit loan varies from one lender bank to another. However, the steps an applicant generally has to follow to avail of a cash credit limit facility include the following:
Step 1: Evaluation of the business working capital requirement needs to be determined before placing an application for the amount of funding required.
Step 2: Arrangement of all the required documents like the updated financial statements, tax returns and business plans of the business.
Step 3: Check the credit score and credit history, as it will significantly important for the loan approval and meeting the terms and conditions of the lender bank.
Step 4: Identify the assets that can be offered as collateral in case of secured cash credit loans.
Step 5: Research and choose a bank offering the most favourable cash credit loan terms and conditions. Compare the interest rates, fees and loan terms but it is always easy to avail the cash credit limit facility from the bank with whom the business accounts are running presently.
Step 6: Complete the loan application form online or at a bank branch as per the policy of the lender bank and submit it along with all the required documents for a successful application.
Step 7: Once the application is approved, review the loan terms offered by the lender bank. It can be negotiated with them, if necessary, to bring the alignment of the loan in much better manner with the business needs.
Step 8: After finalising the agreement, the lender bank will set up the cash credit limit facility and allow to access the withdrawal limit as per the drawing power set to the maximum of sanctioned limit.
Conclusion:
The meaning of cash credit limit facilities can be understood as a source of short-term capital for businesses. Businesses may frequently collaborate with banks to acquire financial assistance in loans.
Cash credit aids in sustaining consistent business growth and allowing businesses to keep up their day-to-day operations effortlessly. Cash credit can be a sustainable financial product for banks because it is a secured form of credit as applicants must provide collateral in form of inventory and book debts along with collateral securities like self-owned residential or commercial or industrial properties.
Furthermore, numerous businesses can apply for cash credit loans. Their terms of eligibility are applicable in many businesses. Sometimes consumers confuse cash credit limit facility with overdraft loan. Although they seem similar, they are two completely different financial products.
