Cash Credit Loan
A cash credit loan is a sort of working capital loan that helps a firm achieve its working capital obligations. The funds can be withdrawn against the hypothecation of stocks and receivables. It is available as both a secured and unsecured loan. Cash credit has a one-year loan repayment period. In actuality, the bank provides loans to businesses based on the applicant’s credit history. To obtain a cash credit loan, firms must provide collateral or security.
These money may be used for any overall operating expenses, such as raw material procurement, machinery purchase, overhead charges, salary repayment, debt settlement, real estate acquisition, inventory costs, and so on.
Advantages and disadvantages of cash credit loans.
| Advantages | Disadvantages |
|---|---|
| No collateral required | Interest rates are high. |
| No CIBIL score check is needed. | A shorter repayment period of 12 months. |
| Interest paid is tax deductible. | Difficult to obtain by startups. |
| Interest rate on the withdrawn amount | Short-term Loan. |
| Quick and convenient access with flexibility. | Used primarily to meet working capital needs. |
| Source of working capital finance. | Minimum commitment charges. |
| Easy arrangement. | The difficulty in securing |
What Documents Are Required for a Cash Credit Loan?
- Duly filled application form
- Business Plan/Project Report
- Copy of the PAN card
- Passport-size pictures of the applicant
- Identity proof includes a passport, driver’s license, and voter’s ID card.
- Residence proof: voter’s ID card, driver’s license, passport, ration card, phone bill.
- Income Proof: Bank statements over the last six months and three years
- Audited financial documents
- ITRs from the previous two years, as well as GST returns for the current year.
- Business proof includes incorporation and sales tax registration certificates, rent agreements,
- Proof of business address: ownership, property papers, house tax documents, and an electricity bill
- Details about collateral or security to be supplied
- Details about existing loans and their repayment schedule
- Partnership deed and memorandum of articles (MoA).
- Valid trade licenses and certificates under the Shop Establishment Act.
- Lastly, the GST registration certificateWhat are the Documents Required for a Cash Credit Loan?
Who can get a Cash Credit Loan?
Individuals, professionals, business entrepreneurs, firms, partnerships, sole proprietorships, limited liability partnerships (LLPs), cooperative societies, and registered trusts engaged in manufacturing, trading, and services classified as MSME can use the Cash Credit Facility.
Conclusion
The Loans with cash credit are an essential instrument for companies trying to keep their cash flowing and control their operating costs. These loans give companies the freedom to take out and return money as needed, enabling them to overcome obstacles and take advantage of expansion prospects. Making educated financial decisions for firms can be facilitated by keeping up of current developments and comprehending the subtleties of cash credit loans.