What is Cash Credit and How it Helps Businesses Acquire Quick Funds

For a business to run smoothly, it needs adequate liquid funds. However, businesses sometimes face a cash crunch and need urgent funds to meet their financial requirements. To address this, banks and financial institutions provide short-term loans in cash credits. This product allows companies to borrow money without a credit balance up to a certain limit. Read on to understand the meaning of a cash credit account and how it can help meet short-term business expenses.

Meaning of cash credit loan
 

For those looking to understand cash credit’s meaning, these are short-term loans offered to businesses and companies to meet their working capital requirements. Also known as working capital loans, they help businesses acquire quick loans to run smoothly or purchase current assets. Companies' borrowing limit may vary by the commercial bank. The interest on the cash credits is charged on the daily closing balance instead of the upper loan limit. So, the repayment must be done only on the amount used from the available limit.

Cash credits are short-term loans with repayment terms of 12 months or less. Banks require collateral against cash credits before approval. They function more like overdraft facilities that companies use to stay afloat.

The amounts obtained through credit loans are relatively small and for a shorter tenure. However, if you wish to acquire a larger loan amount for your business, you can consider going for one of Metra Trust’s working capital loans which offer borrowers loan amounts of up to ₹10 crores based on their financials or up to ₹5 crores on their GST returns, along with flexible collateral options. In addition, Metra Trust also offers quick loan processing.

How does the cash credit loan process work?
 

Here is how cash credit helps businesses meet urgent fund requirements and operate smoothly.

· Source of working capital borrowing
 

For businesses to operate normally, cash credit is a crucial source of liquid money. It is of great help to newly established businesses that have a low profit margin to meet their own expenses.

· Easy loan arrangement
 

Cash credit loans are readily available to businesses and newly established companies with minimal documentation requirements and quick application processes. However, keep in mind that businesses need to produce collateral in order to secure such loans.

· Flexible borrowing
 

It is possible for companies with cash credits to withdraw funds several times within the borrowing limits, as well as deposit excess cash to reduce their debt burden. After approval, a company may withdraw the required expenses from their available limit at their convenience.

· Tax deductibles
 

Interest payments on cash credit are deductible and help reduce the company's overall tax burden. Companies can manage their funds efficiently without worrying about taxes with it.  

· Interest charged
 

One of the biggest advantages of working capital loans is that interest is only charged on the amount used. This helps the borrower since it reduces the financing cost. In case the amounts are not used, the company pays only the minimum commitment charges established beforehand.

So, this is what cash credit means in banking terms. Cash credit loans offer financing options for companies to meet urgent fund requirements without hassles. For arranging the required finance, businesses can choose from a wide range of products such as a bank guarantee, overdraft facility, letter of credit, term loan, as well as other trade products.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.