Cash Credit (CC) Facility - Features, Eligibility, and FAQs

Every business needs funds for running its operations, be it for starting a company, expanding a company, purchasing machinery, or working capital, finance is the foremost requirement. Out of all others, the major requirement of funds is for working capital. Traditionally, most of the working capital financial instruments were secured, where one must have some kind of mortgage on the property. But, now there are unsecured working capital instruments that avail loans without collateral.

Cash Credit (CC) Facility

Cash Credit is an instrument of working capital finance that enables customers to use the amount specified by the lender and pay interest only on the used amount. The amount cannot exceed the sanctioned amount. This is known as the “Credit Limit” by the bank. The cash credit facility is generally given for a period of 12 months and renewed at the end of the year. To overcome the cash crunch faced due to a credit period of debtors, the CC facility is majorly used. Drawing Power (DP) is an important concept for Cash Credit (CC) facilities. It is the limit up to which a firm or company can withdraw from the working capital limit sanctioned.

Features of Cash Credit Facility

1.     Majorly, the CC facility is given by the borrower’s principal banker. The interest is charged only on the used amount by the borrower, which reduces the financing cost.

2.     There are no restrictions on the number of withdrawals of the borrower, the only restriction is on the withdrawing amount. The borrowing limit is determined according to the creditworthiness of the borrower, whereby the borrower can only withdraw up to the limit set by the banker i.e, as stated in DP.

3.     The credit period is generally given for 12 months. After that, the borrower has to renew the period.

4.     CC is available in both secured and unsecured funding, which depends upon the availability of collateral. In the case of secured funds, collateral is assets such as stocks, fixed assets, or property.

5.     The most important benefit of cash credit is its flexibility in deposits and withdrawals. Due to this, a borrower can save a lot of interest costs by depositing as and when the cash is available to him.

An example of a Cash Credit facility

“ABC Private Ltd” is a company engaged in the manufacturing of goods. Being a manufacturing company, the goods are majorly sold in bulk and on a credit basis, where the credit period of the debtor is 30/60/90 days. Also, there was unsold stock. In such a case, the company’s capital is stuck in the form of inventory and accounts receivable. Hence, the company takes a short-term loan in order to meet its working capital issues through a cash credit facility.

Eligibility

1.     Age criteria: Generally, the age of an applicant should be between 21 to 65.

2.     The business should have an existence of at least 3 years or as required by the lender.

3.     CIBIL ratings: If CC is obtained through an unsecured funding option, the borrower will need a creditworthy CIBIL score.

4.     Financial record: Most borrowers have to submit a specific financial record which varies according to the lending institution and also upon the borrower’s business.

5.     There is also a specific requirement of monthly income/ turnover criteria for businesses.

Note: Eligibility criteria vary from lender to lender. The above-mentioned is majorly used.

FAQs

What is the difference between CC and Loan?

The term loan is offered by a lender at a specific rate of interest which has to be repaid within a specified tenure. Whereas, CC facility is short-term finance which helps to overcome working capital issues. The banker specifies a certain limit up to which the borrower can withdraw money and pay interest only on the used money.

Who can avail of the Cash Credit facility?

All the manufacturing and service industries, traders, distributors, companies, partnership firms, and LLPs can apply for a CC facility.

What is the amount offered by the Cash Credit Facility?

The amount of CC depends upon the drawing power of the borrower. DP is calculated by considering the amount of stock, accounts payable, and accounts receivables.

Do banks/lending institutions require collateral for the Cash Credit facility?

The collateral depends upon the availability of the borrower, whether he possesses collateral or not. If the borrower does not have collateral, the ROI in such a situation will be higher than in the secured one.

Why choose Terkar Capital for CC Facility?

If you are looking for a reliable institution for raising finances, Terkar Capital can be the most appropriate for you. We arrange a variety of both debt and equity funding solutions for our clients and try harder to provide these facilities hassle-free. Our confidentiality and transparency in services make us different from others. So, whenever it is corporate funding, Terkar Capital is ready to serve you!