Cash Credit Loan:

A cash credit loan is a short term financing for a company. A company that avails a cash credit facility can withdraw money from a bank account without keeping a credit balance. A business needs regular cash inflow to run its operation smoothly.  Cash credit loan is a kind of working capital loan. The business may use this fund for any kind of operational expense like purchase raw martial, overhead cost, short term debt settlement, etc. Cash Credit loan eligibility criterion is difficult to compare to other loans.

The company has to provide collateral to take cash credit. Bank takes primary collateral as stock generally. Stock can be raw material, working progress goods, and finished goods, etc.

Nowadays, Most of the bank takes additional security. This secondary collateral can be a customer’s residential house, workshop, warehouse, etc. Some bank takes liquid collateral like fixed deposit, mutual fund, shares, etc. as additional collateral.

Features of Cash Credit:

1. A business owner can avail of a cash credit to meet the working capital need of a business.
2. A cash credit comes with the borrowing limit. A borrower can withdraw funds up to its provided borrowing limit.
3. The borrower can get a cash credit limit maximum of 20% of his total sales.
4. A company has to provide collateral or security to take cash credit.
5. Interest charged is only on the withdrawal amount of the cash credit and not on the total borrowing limit.
6. Cash credit is a short term loan. It is for 12 months period generally.
7. This is not an EMI based loan. Customers can pay weekly, monthly or quarterly basis as decided by the lender.
8. The borrower can withdraw funds any time as per his day to day working capital requirement as like running account.
9. Cheque book is issued by the bank in the name of the company.
10. A borrower has to pay a minimum amount of interest on a predetermined amount or the amount withdrawn whichever is higher.

Advantage of Cash Credit Loan:

• The customer can withdraw funds whenever he requires funds for his business. He can deposit funds whenever he has a fund available.
• The borrower can withdraw funds many times within the given limit.
• Interest is charged only the amount withdrawn.

Cash Credit loan eligibility:

The cash credit loan eligibility criterion is too long. They are the following:

• Most of the minimum age of at least 25 years for the business owner. Although this criterion is varying bank to bank.
• Three years of business vintage is good for a cash credit loan. Few banks may provide cash credit facilities less than three years of business vintage. But in that case, other parameters will be high like sales volume and banking turnover have to be good.
• Most of the bank expects at least two years audited IT files. Although few lenders may take one year IT files.
• The borrower must provide primary collateral as stock. Nowadays most of the banks take additional collateral as the owner’s residential house, workshop, warehouse, etc.
• Cash credit is not provided in the service industry generally. However, they can take the Over Draft facility as a working capital loan.
• Bank expects at least 70% to 80% banking transactions on total sales. Few banks may consider the banking turnover too.
• Most of the banks want at least 110% additional collateral on the loan amount. Few banks may take less than 100% secondary collateral.

What are the documents required for a Cash Credit loan?

1. Pan card & Aadhaar card of proprietor / Partners /Directors
2. Address Proof (Voter card /Driving license/ Addhaar card/ Electric bill/ Passport etc.)
3. Ownership proof either office or resident (latest electricity bill or property tax)
4. Trade license for the last three years.
5. GST registration certificate
6. Partnership deed ( In case of partnership company)
7. MOA / AOA (for Private or Limited company)
8. 02 Years of IT files. It includes ITR, computation, P&L account, balance sheet, 3CA & 3CD
9. All existing loan sanction letter (if any)
10. Six months to one-year current account statements.
11. One year cash credit account statement (in case of take over).
12. GST Return for last four quarters
13. Estimated and projected balance sheet and profit and loss account.
14. Work order copy (6 months old and in hand) (if any)
15. Property documents:-   a) Deed
                                              b) Prior deed
                                              c) Mutation certificate
                                              d) Sanction plan
                                              e) Conversion certificate
                                              f) latest property tax receipt

### Above basic documents are required for a cash credit loan. Some bank may ask for customer-specific additional documents

Cash Credit loan interest rate:

Cash credit loan interest rates may vary from bank to bank. It may charge 8.5% to 15% depending upon bank MCLR. Most of the bank charges a different interest rate on the basis of the customer profile. They offer a lower rate of interest to their good profile customer.

Cash Credit fees and charges:

All major banks charge the processing fees on the loan amount. Other charges like commitment charges, stamp duty charges, stock audit charges, etc. may vary from one bank to another.

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